Volkswagen revamp plan blocked by labour opposition, sources say

By Rachel More and Christina Amann

BERLIN, July 10 (Reuters) - Volkswagen's powerful labour representatives have blocked a sweeping restructuring plan, two company sources told Reuters on Friday, underscoring the challenge CEO Oliver Blume faces in overhauling Europe's largest automaker.

Blume is seeking to streamline the sprawling German group as it grapples with intensifying competition from China, billions of euros in U.S. tariff costs and concerns over the competitiveness of its domestic factories.

But Volkswagen's governance structure, which gives union representatives and the state of Lower Saxony a majority on the supervisory board, makes decision-making complicated.

At a supervisory board meeting on Thursday, the committee voted 12-7 against management's restructuring proposal after opposition from labour representatives, the sources said.

Highlighting the pressure, Volkswagen on Friday posted an 8.6% drop in deliveries in the second quarter, the steepest fall in four years.

ANALYSTS SAY PLAN LACKS DETAILS

Volkswagen issued a statement after the board meeting, but analysts said the "future plan" it outlined lacked detail and showed management's inability to push through tough measures.

Sources familiar with the matter had previously said Blume's proposal included up to 100,000 job cuts across the group and the possible closure of four German plants.

In its statement late on Thursday, Volkswagen made no mention of job cuts or plant closures. Instead, it reiterated largely known targets to reduce complexity, measures that did not require supervisory board approval.

Jefferies analysts said there was "no indication of progress towards an agreement having been reached". Bernstein analysts said the plan was "long on ideals, but very short on specifics".

Some analysts welcomed the streamlining plans, which include cutting global production capacity to 9 million vehicles a year from 10 million and reducing the number of models by up to 50%.

The overhaul would gradually reshape a product portfolio that spans mass-market brands VW and Skoda, sports-car maker Porsche and luxury brand Lamborghini.

Volkswagen shares were down nearly 1% at 1043 GMT.

WORKERS DEMAND CLARITY AFTER GERMANY-WIDE PROTESTS

Germany's largest industrial union, IG Metall, rallied workers at Volkswagen Group sites across the country on Thursday, urging management to present a strategy that safeguards production.

The works council has demanded clarity on management's cost-cutting plans by the end of Friday. In a letter to staff, it warned: "The second half of the year is going to be tough."

Volkswagen's current labour agreement includes a strike truce, but unions have threatened to step up industrial action if management seeks to reopen commitments on job security.

Despite the tensions, both sides agree on the scale of the challenges facing Volkswagen, whose profit margins have halved over five years amid weakness in China, the costs of electrification and tariffs.

Conservative Chancellor Friedrich Merz, trailing the far-right Alternative for Germany in opinion polls, has pledged reforms aimed at improving Germany's competitiveness.

"Everyone involved is fully aware that Volkswagen and the automotive industry as a whole are currently facing a critical situation, with an extremely challenging international competitive environment," Lower Saxony state premier Olaf Lies said.

Sources familiar with the matter said Lower Saxony, home to Volkswagen's Wolfsburg headquarters, tried to broker a compromise during the supervisory board discussions.

One source said the state had planned to table its own proposal, but the idea was later dropped. The source did not provide details.

The Lower Saxony government declined to comment.

(Additional reporting by Alexander Huebner. Editing by David Goodman and Mark Potter)