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Slumping sales in China and tougher competition in Europe have contributed to lower earnings at VW. (Krisztian Bocsi/Bloomberg News)

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Volkswagen AG laid out a cost-savings proposal to workers that could avoid factory closures in Germany.

Arne Meiswinkel, the automaker’s chief negotiator, said the plan includes a 10% pay cut and revised bonus system. The measures aim to strengthen the VW brand, which is struggling with weak demand in Europe and growing competition in China.

“We’re open to any discussion to reach our financial goals,” Meiswinkel told reporters in Wolfsburg, Germany, on Oct. 30 after talks with labor leaders. Wages at the automaker would remain “highly attractive” even after the cuts, he added.

Hours before the negotiations, Volkswagen reported its least-profitable quarter in years, bolstering management’s case for pursuing drastic measures in Germany. Labor leaders earlier this week flagged plans including the 10% wage cut as well as the closing of at least three factories in Europe’s biggest economy.

Volkswagen’s latest proposals represent a “first small signal” of progress, Daniela Cavallo, the automaker’s top labor leader, told reporters, adding that possible plant closures aren’t completely ruled out.

Union leaders have long resisted changes at the main VW brand, which has struggled with several electric vehicle launches and low returns.

Slumping sales in China and tougher competition in Europe — which hasn’t returned to pre-pandemic demand levels — have contributed to lower earnings at the group. The VW brand, where most cuts would occur, earned just a 2.1% operating margin in the first nine months of the year.

Volkswagen’s proposals are expected to kick off more complex negotiations, with the next round scheduled for Nov. 21. A grace period runs out at the end of next month, with warning strikes possible from Dec. 1.

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