Volkswagen and Brazil’s most powerful metalworkers union are set to enter a new round of talks after the German car giant late on Monday suspended a plan to reduce its workforce by 16%, or 3,933 workers, Dow Jones reported.

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The news agency said the car maker is bowing to pressure by the union after unveiling a plan in July to invest 300 million reals to help move its “excess” workers to a spin-off company called Autovisao which would then direct them to related work or help them start their own businesses.

Dow Jones said VW’s change of heart comes after the union had threatened labour war, following strategic strikes within the car maker’s factories.

A VW spokeswoman on Tuesday told Dow Jones the programme to create Autovisao continues but letters, which were sent to the workers to inform them they would be transferred to the spin-off unit in September, have been cancelled.

According to the news agency, talks on the issue of job cuts are expected to start again after Jose Lopez Feijoo – the head of the ABC Metalworkers Union – heads to Germany later this month to meet VW management there and see how VW’s employee-transfer programme has worked out for staff in Germany.

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Dow Jones noted the latest developments come as car makers struggle to weather a slump in a $US20 billion market that is dogged by some of the highest interest rates in the world and a sluggish economy – its biggest players, Fiat, VW, GM and Ford have recently resorted to organised group holidays or reduced work hours to keep stocks from piling up at their plants.