Market Data 
By Christina Amann and Christoph Steitz
HANOVER, Germany (Reuters) -Union leaders threatened strikes and warned Volkswagen (ETR:) on Wednesday against an “historic mistake” as the two sides started pay talks that will likely determine how aggressively Europe’s biggest automaker pursues layoffs and plant closures in Germany.
Tensions at the carmaking giant are running high as the spectre of factory closures, which would be a first for the company in Germany, has set it on a collision course with the powerful IG Metall union.
IG Metall must also negotiate new labour deals for the core VW brand’s 130,000 workers in Germany, after the group this month ended agreements that had safeguarded employment at six of its plants in western Germany since the mid-1990s.
Worker representatives have vowed to fight job cuts, blaming top management and the government’s faltering support for Volkswagen’s ills.
IG Metall has threatened strikes from the start of December and is insisting on a 7% pay rise.
“A good shepherd looks after his sheep and keeps them together. Volkswagen’s shepherd is threatening to rip the skin off their bodies and then throw them out in a hurricane,” Thorsten Groeger, IG Metall’s chief negotiator with Volkswagen, told workers outside the talks venue in Hanover.
Works council chief Daniela Cavallo went back into Volkswagen’s 87-year history, referencing the expropriation of trade union funds during the Third Reich.
“With an average interest rate, this capital, which the Nazis had robbed from the labour movement at the time, would have generated billions of euros over the decades. This money, our money, is in the Volkswagen Group today,” she said.
She stressed a preparedness to compromise, but added it was up to management to find a solution.
Some of the more than 3,000 workers outside the venue held up signs saying: “Shortage of skilled workers on the board – we are looking for experts.” Others lit flares and one was dressed as the grim reaper.
Volkswagen argues that high energy and labour costs in Germany put it at a disadvantage to European peers as well as Chinese rivals that have set their sights on a big slice of the region’s electric vehicle market.
Reinforcing that message at the start of the talks, the VW brand’s personnel chief said the division must cut costs to stay competitive.
‘FALLING BEHIND’
“International competition is threatening to overtake us,” Arne Meiswinkel said. “We must work together to restructure our company. The situation is serious.”
The talks are taking place at Schloss Herrenhausen, a 19th century residence for Hanoverian royalty.
They 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 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.
The standoff at Volkswagen has worried Germany’s coalition government, which is already struggling to lift economic growth and its own popularity ahead of federal elections next year.
Economy Minister Robert Habeck said last week that he wanted to help Volkswagen through a period of cost-cutting without having to resort to site closures, but said there were limits.
Stephan Weil, premier of Volkswagen’s second-biggest shareholder, the state of Lower Saxony, criticised any prospect of plant closures and expected stakeholders to come up with “more intelligent” solutions.
At the same time, he called for greater support for electric cars after Berlin scrapped subsidies last year.
VW employee Franz Onken could barely contain his rage: “I’m really angry. I don’t even know what to say yet. So, if I could, I would kick the board’s arse, honestly, quite honestly”.
IG Metall’s Groeger acknowledged the company faced major challenges but said Volkswagen’s success over decades was based on solving problems with employees, not confrontation.
“To first give notice – to smash the china and then wonder at the mess: this is a blatant taboo break – and a historic mistake. Plus it could also cost a lot of money.”
Volkswagen’s management “should circle one day in their calendars in bold: December 1st. That’s not just when the first window on the Advent calendar will be opened. But strikes are possible from 00:01 on this day,” Groeger said.
