(Adds labour official's comment, analyst, background, repeats to recast headline to specify German union)
By Jan Christoph Schwartz
HANOVER, Germany, Aug 19 (Reuters) - Labour union IG Metall will demand a 4 percent pay increase and job guarantees from carmakerAG when the two sides hold closely watched wage talks next month, the union said on Thursday.
Staking out a hard line as expected, union officials said they wanted job security for the 103,000 workers in VW's six western German plants who are covered by the in-house contract.
Klaus Volkert, head of the works council at Europe's biggest carmaker, told Reuters that strikes could break out if the negotiations fail to bear fruit.
"We cannot rule out anything at all or else we have nothing," he said.
The union had previously suggested it would seek 4 percent but had not agreed until Thursday with the company's employee representatives on an official demand.
Volkert had told the German press recently that he was more interested in securing jobs than in getting a wage increase of 1.5 percent or so.
Talks are to start on September 15 and end by late October.
The German company declined to comment before a news conference on Monday, when it plans to spell out its negotiating position. But Peter Hartz, its head of personnel, has made clear he wants workers to be more flexible so that VW can compete against lower-cost rivals.
Noting that its staff earns around a fifth more than other German metalworkers, VW aims to cut labour costs by 30 percent by 2011 to increase its competitiveness in a brutal market marked by sluggish growth, excess capacity and price pressures.
VW's labour costs totalled 13.88 billion euros ($17.2 billion) last year, nearly 16 percent of revenue.
Stock in, which is also dealing with a two-day strike at its plant in Puebla, Mexico, closed down 0.9 percent at 30.98 euros, compared with a 0.7 percent dip in the DJ Stoxx European autos index .
LITMUS TEST FOR GERMANY
VW Chief Executive Bernd Pischetsrieder has said the company does not plan to include a headline pay rise figure when it unveils bargaining aims on Monday but instead will raise nine or 10 points it wants to implement to improve its cost structure.
"I think it is very clear that we have to come to structural improvement of our personnel costs. As Dr Hartz said in July, if we have to get a reduction of 30 percent by 2011 we have to start now," he told analysts in London on Wednesday.
Forced last month to cut its 2004 profit forecast by a quarter after a weak first half, VW is counting on its "ForMotion" efficiency scheme to boost earnings by well over 1 billion euros this year and by 3.1 billion in 2005.
Analysts say VW needs to stand up to its workforce if it wants to win the trust of a market sceptical that Volkswagen can regain its global competitiveness.
"Management has to ensure that it maintains its credibility," said Patrick Juchemich, an analyst at Sal. Oppenheim.
"Hartz cannot stand up and say, 'we're going to bring down labour costs by 30 percent by 2011', and then they do nothing to lay the groundwork for this," he said.
Even the elected government of VW's home state of Lower Saxony has pleaded for more worker flexibility despite potentially angering many of its constituents.
State premier Christian Wulff, who sits on Volkswagen's supervisory board as trustee of the state's stake of nearly 20 percent, warned VW employees that they needed to accept working longer hours.
Fellow German carmaker DaimlerChrysler last month struck a deal with workers, which will save the company 500 million euros ($618.5 million) a year from 2007 and preserve over 6,000 jobs in a southern German plant until 2012.
But the VW talks are seen as more of a litmus test of German workers' willingness to bite the bullet and help galvanise sustainable growth in Europe's biggest economy.
Volkswagen has shown it can be innovative. It launched the "5,000 times 5,000" system, which pays new hires by the number of Touran vans they make rather than by the hours they work and has made Tourans cheaper to build than Golf hatchbacks.