Possible German plant closures loom as unions protest Volkswagen's declaration of bankruptcy.

• On Wednesday, Volkswagen's management confronted workers about the need for "shared responsibility" to address the company's financial crisis.
• After flagging that it could no longer rule out closing plants in Germany, the carmaker will soon face a showdown.
• Daniela Cavallo, a prominent member of Volkswagen's General Works Council, stated in a speech on Wednesday that the management's proposed response is not only a disgrace but also a declaration of bankruptcy.

On Wednesday, the management of the German automotive giant confronted workers and emphasized the importance of shared responsibility in order to address the crisis.

After flagging that it could no longer rule out closing plants in Germany, the carmaker will soon face a showdown.

According to a CNBC translation, Getty Images carried pictures of employees protesting at the townhall about potential plans for the business, waving union flags and banners with slogans stating that management errors were not their fault and demanding leaders to "finally do their job."

Arno Antlitz, the chief financial officer and chief operating officer of Volkswagen Group, informed employees that they have been spending more money at the brand than they earn for some time now, which is not sustainable in the long term.

The European market is expected to see a decline in annual vehicle sales, with around 2 million fewer cars sold each year compared to the pre-pandemic period, according to Antlitz.

According to Antlitz, Volkswagen has approximately a quarter of the European market share, which translates into a 500,000 yearly shortfall in the company's vehicle sales, equivalent to the combined sales typically achieved by two of its plants.

Volkswagen on Monday stated that it believed its employment protection agreement, which has been in effect since 1994 and safeguards the workforce in Germany until 2029, may need to be terminated.

On Tuesday, speculation about potential Volkswagen site closures in Osnabrueck, Lower Saxony and Dresden, Saxony intensified.

"We must work together to enhance the cost-effectiveness of German sites. We must boost productivity and cut expenses," Antlitz stated. "We have a year or two to turn things around. However, we must utilize this time."

'Everything is at stake'

The plan has been criticized by Volkswagen's work council, which represents employee interests, and major German industrial union IG Metall.

Daniela Cavallo, a prominent member of Volkswagen's General Works Council, stated in a speech on Wednesday that the management's proposed response is not only a disgrace but also a declaration of bankruptcy.

As Cavallo addressed workers at the firm's plant in Wolfsburg, she stated that everything was at risk.

What other options do you have? Shutting down factories? Layoffs due to operational reasons? Reducing salaries? These suggestions are only acceptable if the entire business model is obsolete, as stated by Cavallo, according to a CNBC translation.

Volkswagen's management should devise a plan excluding the shutdown of German factories, as urged by Cavallo.

According to previous reports from German media, Cavallo had stated that she anticipated a packed townhall on Wednesday and urged workers to express their grievances loudly and forcefully.

The stock price of Volkswagen has fallen by more than 36% over the past five years, with shares trading 0.9% lower at 11:40 a.m. London time on Wednesday morning.

Amid a challenging economic climate and an influx of new competitors in Europe, Volkswagen struggles to adapt to the shift towards electric vehicles.

CEO Blume seen as 'more of an insider'

On Monday, Jefferies' global autos head Philippe Houchois stated on CNBC's "Squawk Box Europe" that Volkswagen CEO Oliver Blume would attempt to alleviate opposition to potential plans.

"Blume is a different breed from his predecessor. He's probably more of an insider and will see to what extent he is able to adapt at Volkswagen," he said.

According to Houchois, there may not be a significant gap between Volkswagen management and employee representatives in terms of fundamental issues, as indicated by their recent remarks.

"The question is how they can reach an agreement or work together, but both sides seem to understand the endgame," he said.

The challenges facing the German auto industry, particularly Volkswagen, are difficult to navigate at a time when the broader German economy is also facing challenges.

The Ifo institute reported that the business climate in the German automotive industry deteriorated further in August, reaching a negative 24.7 points from the previous month's negative 18.5 points. Ifo stated that business expectations for the next six months were "extremely pessimistic."