Frankfurt (Germany) (AFP) - Ailing auto giant Volkswagen warned Wednesday that “painful” cost cuts were unavoidable as third-quarter profit plummeted, fuelling tensions with unions which fear mass job losses and factory closures on home turf Germany.

Europe’s biggest carmaker reported net profit of 1.58 billion euros ($1.7 billion) between July and September, down 64-percent from a year earlier.

The German group – whose 10 brands range from its core VW models to Seat, Skoda and Porsche – has been plunged into crisis by high manufacturing costs, a stuttering switch to electric vehicles and increased competition in key market China.

“We must intensify our efforts to remain competitive. And we have to act now. Any delay would be irresponsible,” Volkswagen finance chief Arno Antlitz said in a call with reporters.

The company is eyeing an unprecedented cost-savings push to turn the tide and dropped a bombshell in September when it said it was considering closing factories in Germany for the first time.

“We are facing some difficult and painful decisions,” Antlitz said.

Worker representatives this week said at least three German VW plants were at risk and tens of thousands of jobs could go at the namesake brand, while remaining employees faced a 10-percent salary cut.

- ‘Brazen grab’ -

Following a second round of talks with the powerful IG Metall union Wednesday, VW negotiator Arne Meiswinkel confirmed company bosses are seeking a 10-percent pay cut.

The Handelsblatt daily reported that Meiswinkel said factory closures may be averted if such a pay deal can be reached.

Volkswagen had rejected demands for higher wages and was instead seeking pay cuts “as a lever that will enable Volkswagen to continue to invest in the future in order to remain competitive and thus secure jobs”, Meiswinkel said.

The company also wants to cut some special allowances for employees, he added, arguing that even then VW would still be a highly attractive employer.

However, IG Metall said in a statement that factory closures were still on the table.

IG Metall union negotiator Thorsten Groeger described the company’s demands as an unacceptable “poison list” of measures and a “brazen grab into employees’ pockets”.

But he said management’s stated aim of protecting jobs and sites meant that a breakdown of talks had been averted for now.

Works council chairwoman Daniela Cavallo said the two sides should not just talk about labour costs but about a “master plan” that would “ensure profitability and job security in the future”.

The savings proposals are focused on the core VW brand, which reported an operating profit margin of only two percent over the first nine months – far from the 6.5-percent targeted by 2026.

“This highlights the urgent need for significant cost reductions and efficiency gains,” Antlitz said, also citing a “challenging market environment”.

- Industry headwinds -

The group’s global vehicle deliveries fell by seven percent in the third quarter, with an increase in sales in North America failing to offset a 15-percent fall in China.

Deliveries of battery electric models were down 10 percent.

The group said results were also impacted by “higher fixed costs” and restructuring expenses.

Other German carmakers are facing similar headwinds, and Volkswagen in September joined BMW and Mercedes-Benz in cutting its outlook for 2024.

The manufacturers are also nervously watching the European Union’s decision to slap hefty tariffs on Chinese-made electric cars, which they fear could trigger a bitter trade war.