Volkswagen begins key wage talks with unions in shadow of possible factory closures By Reuters

HANOVER, Germany (Reuters) – Unions and powerful executives at Volkswagen ( ETR: ) will begin pay talks on Wednesday that could determine how aggressively Europe’s biggest carmaker pursues layoffs and potential plant closings in Germany.

Tensions at the auto manufacturing giant are high as the specter of factory closures unveiled earlier this month put it on a collision course with the IG Metall union, which has vowed fierce opposition to any such moves.

IG Metall must also negotiate new labor contracts for the 130,000 workers of its core VW brand in Germany after the group earlier this month ended the agreements securing employment at six of its plants in western Germany from in the mid 90s.

Volkswagen says high energy and labor costs in Germany, Europe’s biggest economy, put it at a disadvantage against European peers and Chinese rivals who have set their sights on a large part of the continent’s electric vehicle market .

The talks come as the German industry as a whole struggles with high costs, labor shortages and growing competition, prompting heavyweights including BASF and Thyssenkrupp ( ETR: ) to consider scaling back their operations.

Other German automakers are also feeling the pain, with Mercedes-Benz ( OTC: ) and BMW ( ETR: ) cutting profit forecasts in recent weeks due to weak demand in China.