Peter Hartz, VW's personnel chief, said the company needed to keep a lid on salaries to weather fierce price competition and keep jobs from leaving Germany for lower wage countries.

"Times have changed," Hartz said at a press conference at the company's Wolfsburg headquarters.

"We need new solutions."

The IG Metall industrial union has demanded a four per cent annual increase, but Hartz said the company could not afford that.

"There is no room for salary increases," he said.

IG Metall leader Juergen Peters signaled that the union was unworried by the company's position.

"When we go into pay talks and present our demand to the public, there is a reflex on the part of employers - 'we can't pay,"' he told Westdeutscher Rundfunk radio.

"We will see what comes out of this."

-Nampa-AP

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