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Workers and management start second round of talks

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Volkswagen could shut plants for first time in Germany

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Q3 profit drops 42%, lowest in three years

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Hit by high costs, weak demand in China and Europe

By Christina Amann and Andrey Sychev

WOLFSBURG, Germany, Oct 30 (Reuters) - Workers at

Volkswagen threatened strikes on Wednesday unless

management backed down from planned factory closures in Germany,

spelling more trouble as profits at Europe's biggest carmaker

plunged to a three-year low.

Volkswagen released its third-quarter results on the same

day as a second round of increasingly bitter talks between VW

and unions over wages and fixing the company's future, as high

costs and weak demand in China dragged down sales.

VW's problems have fed wider anxieties about Germany's

status as an industrial powerhouse and the competitiveness of

European carmakers against encroaching global rivals.

German automakers also fear the impact of a standoff between

the European Union and Beijing, with new EU tariffs of up to

45.3% on Chinese electric vehicles coming into force this week.

For Volkswagen, the Q3 results were further evidence that

major change was needed to keep the company competitive.

But worker representatives accuse management of bungling

decisions and tearing up a treasured consensus on

decision-making. While unions are demanding a 7% pay rise, they

say VW plans to shut three plants on home soil for the first

time in the company's 87-year-history, as well as mass layoffs

and 10% pay cuts for those who keep their jobs.

"And I say quite clearly that Volkswagen has opened

Pandora's box by terminating job security and other collective

agreements, has jeopardised the trust of its employees and it is

now up to Volkswagen to restore this trust," IG Metall union

negotiator Thorsten Groeger said.

Workers expected a future for all German sites in the

restructuring.

"Otherwise, I can say quite clearly that we will have to

plan further escalation with our negotiating and collective

bargaining committee," he told reporters.

Volkswagen on Wednesday reported a 42% drop in third-quarter

profit, its lowest level in three years. VW's results showed its

operating return on sales in the passenger car business fell to

2% from 3.4% in the nine months to September from the same

period last year.

"This highlights the urgent need for significant cost

reductions and efficiency gains," finance chief Arno Antlitz

said in a statement.

Antlitz said he was confident that the company could reach

an agreement with workers but could not rule out strikes, with

the company considering more than 10 billion euros in cost cuts.

SHRINKING SALES

The European car market has shrunk by about 2 million

vehicles since the pandemic, resulting in about 500,000 fewer

unit sales for Volkswagen annually. Players such as Tesla

and Chinese carmakers offering cheaper models have

gained market share in Europe.

In China, Volkswagen has also lost market share as local

competitors offer cheaper models, and this has been exacerbated

by a wider slowdown in the Chinese economy due to a real estate

crisis.

Volkswagen's deliveries to China, the world's biggest car

market, fell by 15% to 711,500 vehicles in the third quarter.

This dragged down the global figure, which dropped to 2.176

million vehicles.

Year-to-date, Volkswagen's stock has lost about a fifth,

underperforming a drop of 10% in the pan-European automotive

index.

Europe's top automaker in September had cut its annual

outlook for the second time in less than three months, joining

rivals BMW and Mercedes-Benz in reporting

difficulties.

Volkswagen works council head Daniela Cavallo earlier this

week threatened to break off talks.

Unions cannot hold wider strikes until December as part of a

previously agreed truce, but labour leaders have repeatedly

threatened that workers would do whatever is in their power to

prevent what they consider to be a breaking of taboos.

Wednesday's talks are scheduled to start at 1100 CET (1000

GMT), and Volkswagen earlier this week said it would put forward

proposals on getting the company on track.

Management says the German plants are far more expensive to

operate than the competition, driven by high costs for workers

and energy.

($1=0.9244 euros)