Volkswagen said on Friday that a proposal presented by the IG Metall trade union and the company's works council would not saved the costs it claimed it would, and would not have proved a long-term solution. 

"Although there may also be positive effects in the short term, the measures will not lead to any sustainable financial relief for the company in the coming years," VW said in a statement, adding that it would remain in contact with labor representatives. 

The two sides are locked in difficult negotiations on pay, with VW calling for workers to accept pay cuts — arguing that they are overpaid by the sector's standards — and warning of the possibility of plant closures and layoffs. 

The German car giant says its long-term survival could be at stake unless it takes steps to adapt its costs and production capacities to falling sales and demand in Europe in particular, and elsewhere.

What had unions proposed? 

The unions had proposed that staff and management alike agree to a pay freeze and to foregoing bonuses in 2025 and 2026.

In return it had called for guarantees on maintaining job numbers and not closing facilities.

It had also effectively called for negotiations on increased pay, but had said this money should go into a fund that would compensate any who did face layoffs. 

"Sustainable savings of €1.5 billion ($1.58 billion) cannot be ascertained even after intensive analysis," VW said of the proposal, questioning the potential savings touted by IG Metall and the staff council. 

Why does VW say it must cut costs? 

Volkswagen says that it believes falling new car sales figures in Europe and elsewhere since the coronavirus pandemic are not likely to recover to their previous levels. 

In terms of passenger cars, just over 13 million were sold in the EU in 2019, according to the ACEA manufacturers' association. By 2023, that figure was 10.5 million; a further reduction is projected this year.

As a result of this, and to protect itself against increasing low-cost competition from places like China, VW says it needs to restructure and reduce production capacity.

It also says that it can no longer afford to overpay its employees by the standards of the German carmaking sector, as it traditionally did in a bid to lure top staff to its headquarters in Wolfsburg, which is not exactly Germany's most vibrant city. 

What comes next? 

As the negotiations progress without agreement, the trade unions' scope to strike increases. 

Reuters news agency reported on Friday that it had obtained IG Metall documents sent to members, who have already voted in favor of strikes if the union deems them necessary, saying that they were likely in December.

"Strikes are possible and also necessary from the beginning of December," IG Metall said in the handout, noting that an agreement not to stage walkouts would end on Saturday.

"IG Metall has taken a huge step towards Volkswagen's management in the negotiations," it said, arguing that Volkswagen had not made clear what concessions it was willing to make. 

msh/wd (AFP, dpa, Reuters)