Volkswagen, Europe's largest carmaker, has entered 2006 in optimistic mood after a year in which it was racked by sex and bribery scandals, the forced resignations of senior executives and a protracted row over corporate governance after its controversial share deal with its fellow German carmaker Porsche.

After a strong fourth quarter, the core VW brand produced a full-year operating profit and regained its top-selling position in Europe, ousting Renault.

But the dark ghosts of the outgoing year are set to haunt the group throughout 2006. Executives have underlined the need for drastic job cuts to reduce costs and indicated that the collective agreement that there would be no compulsory redundancies among the 103,000-strong German workforce before 2011 will have to be renegotiated when pay talks get under way in October.

Wolfgang Bernhard, head of the VW brand, and Horst Neumann, the new personnel chief who took over from the disgraced Peter Hartz, the main victim of the bribery sandal, have both said in recent interviews that VW is planning further heavy cost cuts on top of the €2bn (£1.4bn) already under way. Mr Bernhard pointed out that VW takes 50 hours to build a car, compared with the average 25 hours achieved by competitors. "VW must either put a question mark over plants or the manner in which they work," he said.

Their remarks suggest that reports of 30,000 job losses and the possible closure of several plants or a sell-off of component works are not wide of the mark.

In public, officials at VW's Wolfsburg headquarters insist there are no plans to renegotiate the 2004 agreement with the industrial union IG Metall that safeguards jobs in return for wage cuts. Privately, however, they are indicating the opposite.

If this promises to be a hot autumn on the labour front, the spring could be even hotter as the company prepares for its May 3 annual meeting.

A showdown is likely likely over the composition of VW's supervisory board. Porsche, Volkswagen's biggest shareholder, will press for two seats on the board, but the federal state of Lower Saxony, VW's second-largest shareholder, could join American investors in demanding the unseating of Ferdinand Piëch over conflicts of interest.

Mr Piëch is chairman of the supervisory board but also the biggest shareholder in Porsche, which began buying shares in VW last autumn to safeguard it against a foreign takeover.

The US investment funds that piled into VW - Brandes (8.6%), Capital (3.5%) and Tweedy Browne (1%) - are enraged by the position enjoyed by Mr Piëch and determined to oust him. They, like Christian Wulff, Lower Saxony's state premier, believe Mr Piëch's position is untenable.

But Wendelin Wiedeking, Porsche's chief executive, is equally determined to get both himself and his chief financial officer, Holger Härter, elected to the board in May. Porsche, which has a long-standing industrial partnership with VW, including joint production of their Cayenne and Touareg sports utility vehicles, invested €3.5bn to become the larger group's biggest shareholder and sees the stake as essential to safeguarding the independence of both.

Mr Wiedeking, who has overseen 11 years of growth at Porsche, has said that his own supervisory board has given him the green light to increase Porsche's stake in VW even further. There are suggestions it could rise to 29.9% before the annual meeting. Four VW board seats, including those of Lord Simon, the former BP chief executive, and Gerhard Cromme, the ThyssenKrupp chairman, will be vacant but it is far from clear whether Mr Wiedeking will succeed in his plan.

These two battles have cast a shadow over the future of VW's chief executive, Bernd Pischetsrieder. Ousted from BMW over the Rover debacle, he is now seen as an isolated figure at VW. He opposed the appointment of Mr Neumann as personnel director because of the latter's union roots but was outgunned by Mr Piëch and his IG Metall supporters, who make up half of the supervisory board.

His response so far has been characteristically cool and calm, but he may yet turn out to be the fall guy in VW's conflict-ridden year ahead.