By Christina Amann

HANOVER (Reuters) -Volkswagen neared a deal with labour leaders in the company’s longest negotiations over pay and jobs, sources said on Friday, but the final outcome was still uncertain as Europe’s largest carmaker tries to push through cuts and avert mass strikes.

Volkswagen has been in talks with labour representatives since September over measures it says are necessary for it to compete with cheaper Chinese rivals, lacklustre demand in Europe and slower-than-expected adoption of electric vehicles.

VW and IG Metall said they would inform the public about the status of negotiations at separate press conferences scheduled for 1830 CET (1730 GMT).

Around 100,000 workers have already staged two separate strikes in the past month, the largest in Volkswagen’s 87-year history, protesting against plans to cut wages, reduce capacity and potentially shut German plants for the first time.

One source told Reuters that the two sides had drawn up a draft proposal but that could still fall through if either the company’s board or a worker commission shoots it down.

The Handelsblatt newspaper reported that the provisional deal would meet the company’s target of saving billions of euros, saying a buyer would be sought for the Osnabrueck plant and the Dresden site would be repurposed or closed.

Volkswagen was not immediately available for comment.

Its shares were up 2% by 1626 GMT.

German business monthly Manager Magazin reported that well over 10,000 jobs would be lost over the coming years and that capacity would be significantly reduced at some plants.

The fifth round of negotiations has been under way since Monday and continued deep into the night at a hotel in Hanover this week, with negotiators only taking short breaks to sleep and fuelling up on coffee, curried sausage and fruit. Both sides have said they are aiming to secure a deal and give workers some certainty by Christmas.

“We are getting closer,” a source familiar with the negotiations said. A second source close to the negotiations confirmed that view, though a third cautioned that the talks could still stumble.

“We can still make a wrong turn on the home stretch,” the source said.

LUKEWARM COMPROMISE

The talks, which lasted more than 60 hours, took place in a dated no-frills business hotel on the outskirts of Hanover, where delegates from both sides met in various rounds that were at times interrupted by short breaks during which they stocked up on coffee and fruit well after midnight.

Some workers even played a round of cards to decompress.

The crisis at VW has hit at a time of uncertainty and political upheaval in Europe’s largest economy, as well as wider turmoil among the region’s automakers.

How to fix Germany’s sluggish growth has taken centre stage as a campaign issue ahead of a snap election in February, while Chancellor Olaf Scholz, trailing in the polls, has urged VW to keep all its factories open.

VW workers strongly oppose plant closures but Volkswagen has previously signalled they may be necessary to find around 4 billion euros ($4.2 billion) in savings to respond to what it expects is structurally weaker demand in Europe.

VW’s structure is unique, with management having to get approval from a two-thirds majority in the 20-strong supervisory board for any decision to build or move a production plant. That means 10 members representing German labour unions can veto any far-reaching plans that affect factories.

Former Volkswagen bosses, including Herbert Diess and Bernd Pischetsrieder, failed in their attempts to make far-reaching changes to the Wolfsburg-based carmaker as the unions stood firm. A VW veteran of three decades, current boss Oliver Blume had maintained good relations with the unions.

UBS analyst Patrick Hummel estimated last week that a headcount reduction of at least 30,000 was necessary to deliver on VW’s 6.5% operating profit target for 2026. “A ‘lukewarm’ compromise (i.e. without plant closures) would likely not be appreciated by the market,” Hummel wrote in a note.

But IG Metall’s threat of strikes is a powerful bargaining chip. UBS estimates every strike day in Germany may cost VW up to 100 million euros in revenue and around 20 million in operating profit, based on 2,000-3,000 lost vehicle production a day.

The crisis at Volkswagen has already spilled over to its investors, with top shareholder Porsche SE warning of potential impairments of up to 20 billion euros on its 31.9% stake in the carmaker.

($1 = 0.9616 euros)

(Reporting by Christina Amann; Additional reporting by Christoph Steitz; Writing by Matthias Williams; Editing by Friederike Heine, Elaine Hardcastle and Emelia Sithole-Matarise)

---