Nov. 3 (Bloomberg) -- Volkswagen AG, Europe's biggest carmaker, agreed to guarantee the jobs of 103,000 German workers, avoiding a strike, in return for a wage freeze and cost cuts worth 2 billion euros ($2.54 billion) annually by 2011.

The savings represent a 30 percent reduction in wage costs at six German plants, said Josef-Fidelis Senn, chief negotiator for Wolfsburg, Germany-based Volkswagen. The wage freeze is retroactive to Oct. 1 and lasts for 28 months, while the job guarantee runs through 2011, said Hartmut Meine, the IG Metall union's chief negotiator.

Chief Executive Bernd Pischetsrieder demanded cost reductions in Germany, where labor expenses are about six times more than in countries such as Poland and unemployment is 10.7 percent, the highest level in five years. Volkswagen, which also builds vehicles in Poland and Slovakia, threatened to cut 30,000 jobs without the savings. IG Metall has lost half a million members over the past decade and struggled to win wage increases as companies including Siemens AG threatened to move jobs abroad.

"It's good for the company and for employees to get a deal because it avoids strikes in the future," said Axel Zeuner, fund manager at SEB Invest in Frankfurt, which oversees $8.5 billion, including Volkswagen shares. "It is a step forward."

Shares of Volkswagen fell 1.10 euros, or 3 percent, to 34.04 euros in Frankfurt. Volkswagen has declined 21 percent this year, making it the second-worst performer on Germany's DAX Index.

Job Guarantees

The stock fell because Volkswagen offered job guarantees that "limit the company's maneuverability," said Marc-Rene Tonn, an analyst at M.M. Warburg in Hamburg who has a "hold" rating on the stock.

The carmaker last week said third-quarter net income fell 65 percent to 76 million euros ($97 million), the seventh straight quarterly drop in profit. The company in July cut its full-year operating profit amid slowing growth in China, stagnant demand in Europe and plummeting sales in the U.S.

Volkswagen's Western European sales fell 2 percent in September and its market share in China is down by more than half since 2000 to 26 percent. The company last month offered buyers of the new Golf compact car 975 euros worth of incentives, including radios and heating and cooling systems, to spur sales as Toyota Motor Corp. gains market share in Western Europe.

Volkswagen joins DaimlerChrysler AG, the maker of Mercedes luxury cars, and Siemens, Germany's largest engineering company, as major employers in Europe's largest economy that have reached accords with unions this year on smaller wage increases or longer working hours. German companies are expanding their investments in countries such as Poland, Hungary, the Czech Republic where taxes, social benefits and pay are lower.

Volkswagen Pay

Volkswagen factory workers make an average of about 2,600 euros a month, said Joerg Koether, a spokesman for IG Metall. In addition, they receive holiday payments of about 1,120 euros and a vacation bonus of 816 euros. German workers receive five to 10 times as much as their Volkswagen colleagues in Poland and Slovakia, when the cost of all the benefits are included, he said.

Siemens reached an agreement with workers at a factory in southern Germany today to reduce employment and cut wages in return for guarantees the company will keep the plant and rule out firing for three years. Siemens will reduce the workforce at the factory in Kirchheim to 175 from 228.

The International Monetary Fund yesterday cut its forecasts for German economic growth for this year and 2005, citing the damping effect of persistent unemployment on consumer spending and companies' reluctance to buy new machinery and tools.

German Economy

German gross domestic product will probably expand 1.9 percent this year, the IMF said, revising a prediction issued in September of 2 percent. Next year, German GDP will expand 1.5 percent, the IMF added, lowering its forecast from 1.8 percent.

The agreement also includes a one-time payment 1,000 euros in March for each worker, while the company agreed to make investments and "concrete" product plans for its German plants, Meine said. Wages of future employees will be lower than those of existing workers, Senn said. Volkswagen agreed that a new small sport- utility vehicle will be built in the company's main Wolfsburg plant beginning in 2007.

The two sides have been in talks off and on since Sept. 15 in Hanover, Germany, and negotiated for more than 25 hours starting yesterday before reaching a settlement. The union's had demanded a 4 percent annual raise as well as job guarantees, while Volkswagen from the start wanted the wage freeze.

"This accord shows how things can be done," Chancellor Gerhard Schroeder told reporters in Essen, Germany. "They've achieved job security -- for German workers -- for seven years and given themselves a basis for economic planning."

Warning Strikes

Workers staged warning strikes Nov. 1 Monday at the Wolfsburg factory, which employs almost half of the carmaker's western German workforce, following inconclusive talks on Nov. 1. About 6,000 employees at the commercial-vehicles factory in Hanover participated in demonstrations yesterday.

"We achieved our goal of securing jobs, not just for today, but for the future," Meine said. "The talks were among the most difficult I have experienced because of the complexity of the issues," said Senn.

Pischetsrieder warned in September that a strike by workers in Germany might bring the automaker's production to a stop worldwide. There has never been a full strike at Volkswagen.

"We said all along that the only way we could guarantee jobs is to remain competitive," said Senn.

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