Stuttgart  - Giant German carmaker Daimler AG is planning a new car factory in Hungary to build compact models of its flagship Mercedes Benz brand, the company announced Wednesday.

Press reports in the build-up to the announcement said Stuttgart- based Daimler had also considered Poland and Romania as possible sites for the new factory.

The new factory in the Hungarian town of Kecskemet is to build the next generation of Mercedes A-class and B-class cars.

Daimler is to continue manufacturing both A-class and B-class at its factory in the German city of Rastatt.

However, the new site in Hungary will allow Daimler's Mercedes Benz Group to produce new models based on lower production costs.

Mercedes is counting on its A and B compact cars to sharply boost sales in its Western European core market from 2012 and to reduce the overall carbon-dioxide emissions from Mercedes-Benz cars, as required under new European Union global-warming policy.

General Motors' European arm Opel meanwhile said it would restructure its main factory in the west German town of Ruesselsheim, to build small cars as well as its mid-sized Vectra model as at present. The Vectra is to be replaced shortly by the Opel Insignia. (dpa)