By Christina Amann and Christoph Steitz
BERLIN/FRANKFURT, Sept 4 (Reuters) - In a tense meeting on Wednesday afternoon at Volkswagen's headquarters in Wolfsburg, three of the firm's biggest power players looked to thrash out an unlikely deal as the embattled carmaker veered towards full-blown crisis.
CEO Oliver Blume, wanting to push through plans for historic job cuts that could hit 100,000 workers, was locked in talks with Supervisory Board Chairman Hans Dieter Poetsch and Olaf Lies, state premier
of the powerful Lower Saxony region, a key shareholder and the heartland of Volkswagen's local production.
The trio, alongside labour representatives, wanted to avoid a threatened 'nuclear option' of an EGM, if the supervisory board opposed the management board, which would have resulted in lengthy and damaging legal battles.
As a result of what they settled on, the supervisory board struck an ambitious turnaround agreement that amounts to the biggest restructuring in the group's 89-year history and averts a clash between major stakeholders.
Volkswagen, Europe's largest carmaker with over 650,000 workers, is battling dwindling margins as it is squeezed by China rivals and tariffs from U.S. President Donald Trump. It needs to cut costs and become more efficient to survive.
With Lower Saxony and unions strongly opposed to job cuts - and the threatened closure of four German plants - a deal looked a distant prospect. Investors feared Volkswagen was "unfixable" and was headed towards a dangerous and costly standoff.
'THE DAMAGE WOULD HAVE BEEN UNIMAGINABLE'
Four sources with knowledge of Wednesday's talks said Volkswagen's management board had a day earlier unified around a tough line that it was serious about calling an emergency shareholder meeting that could bypass the supervisory board to approve jobs cuts - and carve out some divisions that would weaken other power factions.
The management board made it clear that it would resort to the extreme measure of an EGM if the supervisory board - where unions and Lower Saxony have a majority - opposed its plans, the sources said.
This threat to use what the sources called a "nuclear option" paved the way for a compromise on Wednesday, with the growing sense that the outcome of failing to reach a deal could be even worse than the mooted job cuts, with legal battles dragging on for years, hurting Volkswagen even more.
"The damage would have been unimaginable if there hadn't been a solution," one of the four people said.
That, along with a first meeting of top stakeholders on Tuesday in Hanover, set the ground for Wednesday. Blume, Lies and Poetsch, Volkswagen's former finance chief and the CEO of its largest shareholder Porsche SE, began to draw up the contours of an agreement, knowing they had to move fast.
They were joined by Daniela Cavallo, the powerful head of Volkswagen's works council, and Christiane Benner, head of Germany's biggest union IG Metall and the group's deputy chair, one of the people said.
The deal would see the automaker get approval for job cuts while essentially postponing plans to create separate legal entities for the group's passenger car and component divisions, the sources said.
Lower Saxony, which would have seen its power diminished under this scenario, agreed to this, the sources said, adding labour representatives were then brought into the talks to reach a common line on the turnaround plan.
UNIONS PROMISED TO FIGHT JOB CUTS WITH 'ALL OUR MIGHT'
That was no easy feat. Just days before IG Metall - Germany's most powerful union representing the German automaker's workers - had promised to fight any job cuts with "all our might". Lower Saxony, Volkswagen's second-largest shareholder, had also opposed the restructuring plan to shed 50,000 jobs. CEO Blume had lost a similar vote in July.
By Thursday morning a compromise had been struck, the people said, and the firm brought forward its planned supervisory board meeting by a day, catching investors out with a unanimous vote in favour of the turnaround deal, the sources said. The shares - at a quarter of their value five years ago - rallied.
Spokespeople for Volkswagen's supervisory board, its works council and Lower Saxony all declined to comment.
Blume has long argued there is no alternative to cuts in order to turn around the world's second-largest automaker, which like rivals such as Stellantis has far too much production capacity in Europe.
Globally, legacy automakers like France's Renault have already restructured, while others like Japan's Nissan are in the midst of a painful restructuring that has involved selling factories and postponing future models.
Solutions for Volkswagen's four factories in Emden, Zwickau, Neckarsulm and Hanover - still unclear - could involve pivoting to new sectors or sales to ensure they can keep operating once production is phased out in the next decade.
The vote, however, is no silver bullet. The board-approved cuts will still need to be negotiated with unions, which could mean strikes at Volkswagen plants across Germany down the line. Challenges from China to tariffs haven't gone away.
"The uncertainty will remain," one of the sources said. "And it will only disappear once (Volkswagen's) executive board quickly presents concrete plans."
(Writing by Nick Carey; Editing by Alexandra Hudson)
