Volkswagen, Europe's biggest carmaker, is to axe up to 10,000 jobs - a 10th of its German workforce - to cut costs, improve competitiveness and reduce over capacity.
The plans, which will meet resistance from unions, centre on VW's plant in Wolfsburg, near Hanover.
The factory is fighting to build the Marrakesh, a new sports utility vehicle, against proposals to shift production to low-cost Portugal.
The scale of the job cuts was celebrated by investors, who sent the shares soaring. The plans are part of the board's strategy to boost earnings by €7bn (£4.75bn) and return the Volkswagen brand to profit.
The proposals come less than a year after VW reached a historic agreement with its unions to freeze pay in return for job guarantees for the 103,000-strong German workforce until 2011. They underline corporate Germany's desire for reforms ahead of a likely change of government this month.
The chief executive, Bernd Pischetsrieder, refused to say how many jobs would be affected. The company hopes to persuade workers in their 50s to take early retirement, part-time work or redundancy. Wolfsburg is expected to bear the brunt of the cuts among VW's six German plants.
But union anger has been ignited by plans by Wolfgang Bernhard, head of the Volkswagen brand, to force them either to accept lower wages or see the Marrakesh built in a Portuguese plant, which can produce the car for €1,000 less.
Wage costs at Wolfsburg are higher than in other German engineering firms because pay is negotiated outside the national bargaining forum but the unions have enjoyed a cosy relationship with management. This has been a source of recent scandals over expenses, gifts and paid-for sex, which cost the head of the works council his job.
Mr Pischetsrieder said Wolfsburg needed the Marrakesh but production there was not economically feasible. Any decision to build it there would have to take account of the fact that VW employed "several thousand" too many.
German commentators contrasted the news with yesterday's start of production of the new Bugatti-Veyron sports car in Alsace, France, where output will reach at most 300. Each Bugatti will cost €1.2m and is capable of 400kph, the fastest and most expensive car in the world.
It is the brainchild of Ferdinand Piech, the former chief executive who heads the group's supervisory board, and has escaped cost-cutting at VW headquarters.
