Volkswagen has announced plans to cut 30,000 jobs worldwide with about 23,000 of the losses borne in Germany.
VW, still dealing with the aftermath of the emissions-cheating scandal, aims to rejuvenate its core brand, and develop new electric and self-driving cars.
The cuts should bring annual savings of €3.7bn (£3.2bn; $3.92bn) by 2020. VW and unions have been hammering out a plan to revive its fortunes since June.
Volkswagen chief executive, Matthias Mueller, said it was “the biggest modernisation programme in the history of the group’s core brand”.
“The VW brand needs a real shake-up and that is exactly what the future pact has turned out to be,” he added.
The car giant – which employs 610,000 people in 31 countries – wants to increase the brand’s profit margin from 2% to 4% and to do this it will need to improve productivity at its German plants by 25%.
It has 120,000 workers in Germany so the cuts represent a fifth of employees in its heartland.
Volkswagen has pledged there will be no compulsory redundancies and the top staff representative in Germany, Bernd Osterloh, said the new models would be built there: “The next generation of electric vehicles will be made here in Germany, not abroad.”
Volkswagen has been battling a crisis caused by its attempts to dodge strict US emissions limits.
It was revealed in the US last year that VW’s diesel cars were fitted with software that “knew” when cars were being tested.
The company has agreed to pay $15bn in a settlement with US authorities and owners of about 500,000 vehicles.
Around 11 million cars worldwide have the software.
The VW group comprises 12 brands from seven European countries: Volkswagen passenger cars, Audi, Seat, Skoda, Bentley, Bugatti, Lamborghini, Porsche, Ducati, Volkswagen Commercial Vehicles, Scania and MAN.
Professor Christian Stadler, from Warwick Business School, said Friday’s announcement about electric cars marked “a new strategy in a rapidly changing car market”.
China, the world’s biggest car market, is introducing an e-vehicle quota in 2018, where 8% of all vehicles sold will have to be electric. That quota rises to 12% in 2020.
Prof Stadler said: “It means VW would have to sell 60,000 e-vehicles in China by 2018, and hybrids only represent half a point. Even BMW, one of the pioneers of electronic cars has sold just 1,204 e-vehicles in China in 2016 up to September.
“Norway’s sovereign wealth fund holds a sizeable stake in VW and has been putting pressure on them to become more environmentally friendly.” he said.
Analysis: Theo Leggett, business correspondent
Volkswagen is cutting 23,000 posts in Germany alone, but don’t expect protests in the streets of the company’s home town of Wolfsburg. This has been a hard-won deal drawn up after lengthy negotiations with union leaders. They call it the Future Pact.
No-one in Germany will be forced out – early retirement is likely to provide a large portion of the cuts. And VW is creating 9,000 ‘future proof’ positions as part of a major investment in new technologies. Many workers will simply move into new posts.
What this plan really represents is a culture shift at Volkswagen. Even before the emissions scandal, it was clear the core brand in the group was underperforming, with profit margins well below those of its rivals.
The scandal provided the catalyst for a major shift towards electric cars and potentially self driving systems. In future VW may be making fewer engines and more electric motors, fewer gearboxes and more batteries. Software and sensors will become ever more important.
Such a transformation will cost money – at a time when VW is still paying the price for its emissions misdemeanours. So saving $4bn a year looks like a very good idea.