FRANKFURT, Aug 23 (AFP) - Volkswagen, Europe's leading car maker, looked set for a head-on clash with unions Monday by announcing it will seek a two-year wage freeze and increased flexibility of working hours for its 100,000-plus employees in Germany in pay talks due to kick off next month.
While the powerful IG Metall labour union last week called for wage increases of four percent and job guarantees for the 103,000 employees at VW's six production sites around the country, the car maker threw down the gauntlet, saying there was simply no money for a rise in wages.
"There is no room for increases in income," VW's human resources chief Peter Hartz told a news conference, pleading hardship.
"We cannot close our eyes to the worldwide competitive situation ... The European automotive market above all is discouraging. In Germany, in particular, after three years of stagnation, there are still no signs of a recovery," Hartz said.
"If we want to continue existing and secure our jobs in Germany, VW needs to have a significantly better cost structure. This is also true for labour costs, which must be cut by 30 percent by 2011," or around two billion euros (2.5 billion dollars) in concrete terms, Hartz said.
The powerful IG Metall labour union, which last week said it was seeking wage increases of four percent and job guarantees for the next 10 years, dismissed management's demands as "excessive and unrealistic".
The severe austerity measures could even spark a labour conflict, a union spokesman told AFP.
IG Metall argued that employees should not be punished for mistakes made by managers and noted the car maker was still making a profit.
On top of the wage freeze, VW also wants around 30 percent of pay to be performance related.
With the car maker's profits currently falling sharply in the face of slack demand -- bottom-line earnings were down by more than 35 percent in the first six months causing VW to slash its full-year forecasts -- that does not augur well for employees' pay packets.
Sales of the new Golf were below expectations and VW is feeling the heat from price wars in the US and increased competition in the key market of China.
VW also wants increased flexibility of working hours, introducing an annual account of working hours which would enable the company to boost the number of hours worked if and when the situation required.
In addition, overtime would be paid only if employees worked more than 40 hours a week rather than 35 hours at present.
At the same time, management hoped to cut paid breaks and training periods.
And as an efficiency-boosting incentive, VW wanted to introduce an "internal tender system" to allow German plants to compete among themselves for the production of new car models.
Wage negotiations at VW are scheduled to begin in mid-September and a number of officials at IG Metall said last week the talks were likely to prove difficult and could even lead to an all-out labour conflict.
Such warnings came only a month after an unprecedented conflict at rival car maker DaimlerChrysler, where thousands of workers took to the streets in protest against drastic cost-cutting measures.
In a newspaper interview published Monday, IG Metall chief Juergen Peters insisted that he believed an agreement at VW could be reached peacefully.
Asked by the business daily Handelsblatt whether demands by VW management for a zero wage round would likely spark a labour conflict, Peters replied: "The question of a labour conflict remains purely hypothetical at this stage. I hope we'll be able to reach a solution peacefully."
Asked whether IG Metall would be willing to accept zero wage increases, Peters said: "I'm not going to negotiate here publicly. But if an opportunity in this direction arises, we will discuss which concessions could be made to us in return."