By Christina Amann

HANOVER (Reuters) -Volkswagen on Friday announced sweeping changes to its German operations, including more than 35,000 future job cuts and sharp capacity reductions in a last-gasp deal between Europe’s top carmaker and unions to avert mass strikes.

Union leaders hailed the agreement as a “Christmas miracle” after 70 hours of gruelling negotiations, the longest in the company’s 87-year history. There would be no immediate site closures or layoffs, and VW appeared to have backed away from demanding 10% wage cuts.

The deal avoiding costly strikes may also provide relief to investors after months of negotiations. Shares rose 2.4% in extended trade after the deal. They have lost 23% this year .

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

Around 100,000 workers have already staged two separate strikes in the past month, the largest in Volkswagen’s history, protesting against cost-cutting plans.

“With the package of measures that has been agreed, the company has set a decisive course for its future in terms of costs, capacities and structures,” Volkswagen Group CEO Oliver Blume said in a statement.

“We are now back in a position to successfully shape our own destiny.”

VW said the deal would allow savings of 15 billion euros ($15.6 billion) annually in the medium term and saw no significant impact on its 2024 guidance. While there were no immediate closures, VW said it was looking into options for its Dresden plant and repurposing the Osnabrueck site, including looking for a buyer. Some production would be shifted to Mexico.

Vehicle production would shut at the Dresden plant by the end of 2025. VW AG’s staff will not get raises under a collective wage agreement over the next four years, while some bonuses will be scrapped or reduced.

Production at VW’s Wolfsburg plant, its biggest, will be cut to two assembly lines from four.

“No site will be closed, no one will be laid off for operational reasons and our company wage agreement will be secured for the long term,” said works council chief Daniela Cavallo.

TALKS INTO THE NIGHT

The fifth round of negotiations had been under way since Monday and continued deep into the night in Hanover this week, with negotiators only taking short breaks to sleep and fuel up on coffee, curried sausage and fruit.

The 35,000 future job cuts would represent around a quarter of VW’s workforce and come in tandem with reducing the company’s network of German plants by more than 700,000 vehicles.

IG Metall chief negotiator Thorsten Groeger nevertheless said the cuts, which would not involve compulsory redundancies, were part of a solution to address overcapacity and would be done in a socially responsible manner.

Matthias Schmidt, a European auto markets analyst, said: “35K job cuts on a demographic curve up to 2030 is likely not enough and over a too longer time frame to address the current stagnation we are seeing across the European market.”

He added: “I would say the unions can take more from this than VW but realistically because of the complicated structure of the company this was probably the best they could have realistically hoped for.”

Top shareholder Porsche SE welcomed Friday’s deal as a “significant improvement in Volkswagen’s competitiveness”, adding it was now crucial to implement the cuts.

CAMPAIGN ISSUE

The talks 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 breaks during which they stocked up on coffee and fruit well after midnight.

Some workers 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.

The question of 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.

Scholz on Friday night welcomed a “good, socially acceptable solution”, adding in a statement, “Despite all the hardships, it ensures that Volkswagen and its employees can look forward to a good future.”

Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe Privatbank, said at first glance it appeared to be a compromise the sides can live with.

“Other companies are also pursuing job-cutting plans, and VW appears to be just the beginning,” he said. “Competitive price pressure will probably require further adjustments at a later date.”

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.

IG Metall’s threat of strikes was a powerful bargaining chip. UBS estimated every strike day in Germany may have cost VW up to 100 million euros in revenue and around 20 million in operating profit, based on 2,000-3,000 fewer vehicles produced per day.

($1 = 0.9579 euros)

(Reporting by Christina Amann, Christoph Steitz, Andrey Sychev, Kirsti Knolle, Klaus Lauer, Andreas Rinke; Writing by Matthias Williams; Editing by Friederike Heine, Elaine Hardcastle, Emelia Sithole-Matarise, Rod Nickel and David Gregorio)

---