CHICAGO - Ford Motor Co said on Tuesday it will build the next version of its Ford Explorer SUV in Chicago starting in late 2010, adding 1,200 jobs that may include hires at a new lower wage negotiated with its union.

Ford is investing some $400 million under the plan, which includes adding a second production shift at its Chicago assembly plant and increasing production at a stamping plant in nearby Chicago Heights for the Explorer, which currently is produced at a plant in Kentucky.

Production of the new Explorer SUV is expected to begin in the fourth quarter of 2010. The investment includes about $180 million for manufacturing at the Chicago-area plants and $220 million for launch and engineering costs, Ford said.

The Explorer project is backed by $5.9 billion in U.S. Energy Department loans Ford received last year to retool plants and build more fuel-efficient vehicles.

Ford already builds the Ford Taurus and Lincoln MKS sedans at the Chicago plant, where about 1,200 United Auto Workers union-represented employees work a single shift.

About 1,000 workers will be added in the third quarter for a second shift at the assembly plant and another 200 workers will be added at the stamping plant, which has 700 employees.

UAW workers currently on indefinite layoff have priority to apply for the positions, but new hires appear likely at $14 per hour -- about half the current assembly worker's wage.

About 600 Ford UAW workers on indefinite layoff would have the first opportunity to apply for the jobs and after that it is possible Ford could begin to hire new workers at the lower wage, Ford Vice President Jim Tetreault told reporters.

It is reasonable to expect that we would have to do some new hiring, Ford spokeswoman Marcey Evans said. That is our expectation.

UAW Vice President Bob King, in line to succeed Ron Gettelfinger as the next president of the union, said it was too early to tell whether Ford would be able to hire workers at the lower wage and said most hires would be senior members.

UAW Local 551 Chairman Ryan Rettig said some 48 workers on indefinite layoff at his local were eager to get back to work.

I can't imagine anyone would turn it down, Rettig said.

The Chicago plant, which opened in 1924 and once built the Model T that made Ford famous, was one of five in the United States promised a new vehicle program in February when UAW workers approved a cost-cutting agreement with Ford.

The new Explorer is planned as unibody construction that shares components with the Taurus and MKS, but is classified as a sport-utility vehicle, rather than a crossover.

Ford plans to use six-speed transmissions and turbocharged engines to boost fuel economy by at least 25 percent over the current version.

The Explorer was once a profit driver for Ford during the SUV boom of a decade ago and remains a key part of its lineup. Sales peaked at more than 445,000 in 2000 and averaged about 412,000 per year from 1995 through 2003.

In 2009, sales fell 35 percent from the previous year to 52,190.

Ford has been building the current version of the Explorer at its Louisville assembly plant in Kentucky, one of three truck plants being converted to produce smaller vehicles under the automaker's broad restructuring plans.

Ford has not announced specific vehicle production plans for Louisville, but has said the vehicles will be based on its global C platform that underpins the automaker's new versions of the Focus compact car that will be produced in Michigan.

The announcement comes two days before Ford releases its fourth-quarter and full 2009 earnings results and at a time when it has been gaining both market share and critical raves for improvements to its product line.

The only large U.S. automaker not to reorganize under a government-managed bankruptcy, Ford has said it expects to be solidly profitable in 2011. However, many analysts believe Ford will be profitable in 2010 and Ford is expected to update its outlook on Thursday.

Ford shares were up 23 cents, or 2.1 percent, at $11.26 on Tuesday on the New York Stock Exchange.

(Additional reporting by John Crawley in Washington and David Bailey in Detroit; editing by Matthew Lewis, Gary Hill)