Volkswagen starts key pay talks with unions in shadow of possible plant closures By Reuters

HANOVER, Germany (Reuters) – Powerful trade unions and executives at Volkswagen (ETR:) will kick off talks over pay on Wednesday that are likely to determine how aggressively Europe’s biggest automaker pursues layoffs and potential factory closures in Germany.

Tensions at the automaking giant are running high as the spectre of plant closures, unveiled earlier this month, has set it on a collision course with the IG Metall union, which has vowed fierce opposition against any such moves.

IG Metall must also negotiate new labour deals for the core VW brand’s 130,000 workers in Germany, after the group earlier this month ended agreements that had safeguarded employment at six of its plants in western Germany since the mid-90s.

Volkswagen argues that high energy and labour costs in Germany, Europe’s top economy, put it at a disadvantage to European peers and Chinese rivals that have set their sights on a big slice of the continent’s electric vehicle market.

The talks come as Germany’s industry as a whole is struggling with high costs, labour shortages and rising competition, leading heavyweights including BASF and Thyssenkrupp (ETR:) to consider paring back their activities.

Other German automakers are feeling the pain too, with Mercedes-Benz (OTC:) and BMW (ETR:) cutting their profit forecasts in recent weeks due to weak demand in China.