Volkswagen has reached an agreement with the IG Metall trade union that will avoid plant closures in Germany and avoid immediate redundancies.
However, the two sides agreed to cut more than 35,000 jobs across the country in a “socially responsible way” by 2030, in order to save around €15bn (£12.4bn).
Germany's largest automaker had previously warned that it might have to close its factories in the country for the first time in an attempt to cut costs.
After lengthy negotiations that began in September, the union said on Friday that the two “succeeded in finding a solution” that would secure jobs and allow investment in the future.
Volkswagen was considering closing up to three factories in Germany and was calling on its workforce to accept a 10% pay cut.
At the time, the union was demanding a 7% raise.
While the deal will also see a reduction in production capacity across its plants, it has been celebrated by union leaders.
“No sites will be closed, no one will be laid off for operational reasons, and the wage agreement of our company will be secured for the long term,” said Daniela Cavallo, Chair of the Works Council at IG Metall.
She added, “We have reached a solid solution under the most difficult economic circumstances.”
It is expected that 35,000 jobs will be cut by 2030 through various solutions such as offering early retirement.
Under the agreement, the 5% wage increase previously agreed upon in 2025 and 2026 will also be suspended.
The union said this would help “support the transformation” of the company.
The number of apprenticeships on offer each year in Germany will be reduced from 1,400 to 600 from 2026 as well, and it will consider moving some production to Mexico.
It is also looking for alternative options for its locations in Dresden and Osnabrück.
But Oliver Blume, CEO of Volkswagen Group, said in a statement that the agreement was “an important signal for the continuity of the Volkswagen brand in the future.”
The closure of factories in Germany was unprecedented in the history of the manufacturer.
Volkswagen, along with other German automakers, has been hit hard by falling demand for its cars in China, which was previously a lucrative market.
Meanwhile, Chinese brands have moved into Europe, increasing competition for sales.
During the talks, about 100,000 workers joined short so-called “warning strikes” at sites across the country, in order to put pressure on the company's management.
The latest round of talks began on Monday, and negotiators appear determined to settle matters before Christmas.
German Chancellor Olaf Scholz also welcomed the announcement, describing it as a “good and socially acceptable solution.”
