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Latest round of talks has been ongoing since Monday

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VW seeks to cut costs as European market shrinks

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Both sides have drawn up provisional deal, source says

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Could include sale of 1 plant, closure of 2nd, HB reports

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More strikes could prove costly for company, analyst says

(Adds scheduled press conference in paragraph 3)

By Christina Amann

HANOVER, Dec 20 (Reuters) - Volkswagen neared a deal

with labour leaders in the company's longest negotiations over

pay and jobs, sources said on Friday, but the final outcome was

still uncertain as Europe's largest carmaker tries to push

through cuts and avert mass strikes.

Volkswagen has been in talks with labour

representatives since September over measures it says are

necessary for it to compete with cheaper Chinese rivals,

lacklustre demand in Europe and slower-than-expected adoption of

electric vehicles.

IG Metall said it would inform the public about the status

of negotiations at a press conference scheduled for 1830 CET.

Around 100,000 workers have already staged two separate

strikes in the past month, the largest in Volkswagen's 87-year

history, protesting against plans to cut wages, reduce capacity

and potentially shut German plants for the first time.

One source told Reuters that the two sides had drawn up a

draft proposal but that could still fall through if either the

company's board or a worker commission shoots it down.

The Handelsblatt newspaper reported that the provisional

deal would meet the company's target of saving billions of

euros, saying a buyer would be sought for the Osnabrueck plant

and the Dresden site would be repurposed or closed.

Volkswagen was not immediately available for comment.

Shares in Volkswagen were up 2.3% at 1331 GMT.

The fifth round of negotiations has been under way since

Monday and continued deep into the night at a hotel in Hanover

this week, with negotiators only taking short breaks to sleep

and fuelling up on coffee, curried sausage and fruit. Both sides

have said they are aiming to secure a deal and give workers some

certainty by Christmas.

"We are getting closer," a source familiar with the

negotiations said. A second source close to the negotiations

confirmed that view, though a third cautioned that the talks

could still stumble.

"We can still make a wrong turn on the home stretch," the

source said.

'LUKEWARM COMPROMISE'

The crisis at VW has hit at a time of uncertainty and

political upheaval in Europe's largest economy, as well as wider

turmoil among the region's automakers.

How to fix Germany's sluggish growth has taken centre stage

as a campaign issue ahead of a snap election in February, while

Chancellor Olaf Scholz, trailing in the polls, has urged VW to

keep all its factories open.

VW workers strongly oppose plant closures but Volkswagen has

previously signalled they may be necessary to find around 4

billion euros ($4.2 billion) in savings to respond to what it

expects is structurally weaker demand in Europe.

VW's structure is unique, with management having to get

approval from a two-thirds majority in the 20-strong supervisory

board for any decision to build or move a production plant. That

means 10 members representing German labour unions can veto any

far-reaching plans that affect factories.

Its board and members of the supervisory board are expected

to meet this afternoon to discuss an agreement, according to

people familiar with the matter.

There is no consensus among management over the issue of

plant closures, another source said.

UBS analyst Patrick Hummel estimated last week that a

headcount reduction of at least 30,000 was necessary to deliver

on VW's 6.5% operating profit target for 2026. "A 'lukewarm'

compromise (i.e. without plant closures) would likely not be

appreciated by the market," Hummel wrote in a note.

But IG Metall's threat of strikes is a powerful bargaining

chip. UBS estimates every strike day in Germany may cost VW up

to 100 million euros in revenue and around 20 million in

operating profit, based on 2,000-3,000 lost vehicle production a

day.

The crisis at Volkswagen has already spilled over to its

investors, with top shareholder Porsche SE warning

of potential impairments of up to 20 billion euros on its 31.9%

stake in the carmaker.

($1 = 0.9616 euros)