Volkswagen and the IG Metall union have agreed a 4.2% pay rise that will affect 95,000 staff in six western German plants.
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The union had threatened industrial action if the deal was not finalised on Monday.
The pay rise will come into force on 1 January and is part of an 18-month deal which runs until the end of January 2011.
The deal will also introduce performance-related pay which could be worth as much as EUR100 (US$147) a month from 2011.
It’s the first time that VW and IG Metall have agreed to performance-related pay, details of which will be worked out over the next 11 months.
The 4.2% pay rise is in line with what workers elsewhere in the German engineering sector are getting.
