Volkswagen reportedly will ask German workers to forego pay hikes for two years as part of a broader plan to cut labour costs by some €2 billion ($US2.51 billion) in the next six years.

There is “no room” for increased wages, VW personnel chief Peter Hartz, who wants to use next month’s wage negotiations as a starting point to slash its labour cost base by 30% by 2011, told Reuters.

He also rebuffed a demand from the IG Metall metalworkers union that Europe’s biggest carmaker guarantee 103,000 jobs at six western German plants for the next decade.

Reuters reported at the weekend that VW would insist on a pay freeze of at least one year, according to a company source.

Last week, VW’s works council and the IG Metall union also staked out a hard-line bargaining position for the talks, demanding a 4% wage hike and extensive job guarantees.

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The news agency noted that Volkswagen, which recently warned it would fail to meet its 2004 profit target by about €600 million, is grappling with currency headwinds, high production costs, slack demand and an erosion of prices in its key markets.

VW’s Hartz, architect of the country’s broader labour market reforms, reportedly demanded more flexibility from a work force that earns about a fifth more than other German metalworkers.

He said though that this didn’t mean that current employees would have less money in their pockets: “It’s much more about an intelligent, structural re-orientation of the labour costs.”

The report noted that DaimlerChrysler last month managed to wring €500 million in labour cost savings from German employees at its flagship Mercedes unit in exchange for job guarantees, after threatening to axe 6,000 jobs at one plant.

Unlike Mercedes boss Juergen Hubbert, Hartz didn’t take out the heavy ammunition by threatening to move some auto manufacturing abroad. “We’re offering alternatives to relocating production,” he said.

The company presented a seven-point plan to be implemented in the coming six years that included reducing the number of different wage classes to 12 from 22 and linking bonuses to corporate earnings.

Hartmut Meine, who heads IG Metall’s negotiating team in VW’s home state of Lower Saxony, told Reuters it was unfair to make staff bear the brunt of the efficiency drive at VW.

“If it came to a pay freeze, it would basically mean an announcement that shareholders also get nothing,” he reportedly told German television on Monday. “Shareholders get a regular dividend, so why should the workers get nothing?”