Volkswagen (VW), Europe’s leading carmaker, announced a landmark agreement on Friday to reduce its German workforce by 35,000 positions over the next few years. The deal, reached after 70 hours of intense negotiations with unions, is being hailed as a "Christmas miracle" by labor leaders and brings relief to both employees and investors by averting immediate layoffs and costly strikes.

The negotiations, the longest in Volkswagen’s 87-year history, concluded with significant changes to the company’s German operations. While there will be no immediate site closures, VW plans to streamline operations by reducing production lines at its Wolfsburg plant and shutting vehicle production at its Dresden facility by the end of 2025. Additionally, options are being explored to repurpose the Osnabrueck site, including a potential sale, with some production expected to shift to Mexico.

Volkswagen aims to save €15 billion ($15.6 billion) annually through the agreed measures, which include capacity reductions and a freeze on collective wage increases for the next four years. Bonuses will also be reduced or eliminated as part of the cost-cutting plan. Despite these significant changes, the company maintains that its 2024 guidance remains unaffected.

“Through this package of measures, Volkswagen is now positioned to shape its destiny successfully,” said Oliver Blume, CEO of Volkswagen Group.

The agreement comes amid growing challenges for Volkswagen, including declining sales in Europe, competitive pressure from cheaper Chinese rivals, and slower-than-expected adoption of electric vehicles.

Union leaders, while recognizing the necessity of the cuts, celebrated the absence of compulsory redundancies. Daniela Cavallo, works council chief, emphasized the importance of safeguarding jobs: “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.”

The concessions made by VW are seen as a testament to the unions’ negotiating strength, bolstered by the recent history of strikes. In the past month, 100,000 workers staged protests, the largest in the company’s history, which reportedly cost VW up to €100 million per strike day in lost revenue.

Thorsten Groeger, IG Metall’s chief negotiator, acknowledged the job cuts as a step to address overcapacity but stressed the agreement’s socially responsible approach.

The deal has political ramifications as Germany grapples with sluggish economic growth. Chancellor Olaf Scholz, trailing in the polls ahead of a February snap election, welcomed the agreement as a “good, socially acceptable solution” that secures Volkswagen’s future while protecting jobs.

Despite the agreement, analysts remain cautious. Matthias Schmidt, a European auto market expert, suggested the job cuts may be insufficient to address Europe’s automotive stagnation. Similarly, Alexander Krueger, chief economist at Hauck Aufhaeuser Lampe Privatbank, warned that further adjustments may be necessary.