"If the company is looking for a conflict, we are ready to back up our claims with protest action and warning strikes," chief IG Metall negotiator Harmut Meine told Die Welt newspaper ahead of the talks.

"Shareholders get a dividend and the workers have to tighten their belts with a wage freeze," he said. "It's not fair."

IG Metall, Germany's most powerful industrial union, blamed Volkswagen for creating a climate of conflict ahead of the negotiations, whose first rounds start later Wednesday, and asked VW to be prudent with its public comments.

"We have not even started to negotiate and here comes a financial wizard from the management board who heats up the climate of negotiations with unnecessary chatter," he said in reference to comments by chief financial officer Hans-Dieter Pötsch.

Pötsch last week said about 30,000 jobs are at risk if wage negotiations end without cutting costs.

"That is irresponsible," Meine said.

The wage negotiations at VW often set the standard for the rest of the industry, and the country's biggest industrial union and employers typically take distant but firm positions as the talks get under way. IG Metall, which is negotiating on behalf of 103,000 manufacturing employees, is asking for job guarantees and a 4 percent pay rise from Oct. 1, after a two-year wage agreement expires at the end of this month.

A pre-emptive strike?

But VW, in an unusual negotiating stance, has already disclosed what it intends to propose to the union even before the talks start: a two-year wage freeze and various cuts in pay and benefits.

The usual negotiating tactic of companies is to wait for the union to declare its demands during the first round, then wait a few weeks before divulging its counter-proposals.

"We will not agree to a wage freeze," Meine said, adding that he could not say how long the talks would drag on.

"But I expect difficult negotiations and a heated conflict," he said.

Analysts polled by the AFX financial news service on the eve of the talks said the positions of the two sides are so far apart that they may well be on a collision course that could lead to production disruptions.

"It will definitely be a very difficult negotiation," said economist Eckhard Tuchtfeld at Commerzbank. He added it would be very difficult for IG Metall to agree to a wage freeze because they were already insisting on a four percent increase.

"If it had said it wanted two percent or so, then it would be easier to back down from the original demand. But from four percent to zero, they would really look funny," Tuchtfeld said.

Other analysts said the investor community has already factored into this year's estimates for VW the possibility of output cuts as a result of strikes which IG Metall might call to back its wage demands.

Abu Dhabi deal fails

In more bad news for Volkswagen on Wednesday, the company said that talks to sell a 9.8 percent stake in VW to an investment group from Abu Dhabi had been called off due to disagreement over the price.

"Both sides regret this development, but see promising prospectives for working together on other present projects," VW said in a statement.

VW wanted to the sale of shares to help finance the purchase of 50 percent of Dutch car leasing and management firm LeasePlan. The deal will now be paid for out of VW's current operating revenue.

VW's stock fell sharply after news of the ending of the talks broke. In late afternoon trade on Wednesday, Volkswagen shares dropped 2.67 percent to €32.47 ($39.46).