• Volkswagen's management went toe-to-toe with workers on Wednesday, outlining the need to take "joint responsbility" in order to turn things around at the crisis-stricken German automotive giant.
• The showdown comes shortly after the carmaker flagged it was no longer able to rule out closing plants in its home country of Germany — a measure that was previously considered off the table.
• Daniela Cavallo, a leading representative of Volkswagen's General Works Council, said in a speech on Wednesday that the response proposed by the carmaker's management "is not just a disgrace. It's a declaration of bankruptcy."

Volkswagen's management went toe-to-toe with workers on Wednesday, outlining the need to take "joint responsibility" in a bid to turn things around at the crisis-stricken German automotive giant.

The showdown comes shortly after the carmaker flagged it was no longer able to rule out closing plants in its home country of Germany — a measure that was previously considered off the table.

Pictures carried by Getty Images showed employees protesting at the townhall about the potential plans for the business, waving union flags and banners with slogans saying that management mistakes were not their fault and urging leaders to "finally do your job," according to a CNBC translation.

Oliver Blume, CEO of Volkswagen Group, said on Wednesday that the current situation at the company "affects us all emotionally, including me personally."

Blume said the automotive industry had "changed massively" in recent years.

"Together, we will implement appropriate measures to become more profitable. We are leading VW back to where the brand belongs — that is the responsibility of all of us," he added.

"We have been spending more money at the brand than we earn for some time now. That doesn't go well in the long term," Arno Antlitz, chief financial officer and chief operating officer of Volkswagen Group, told employees, according to comments shared by Volkswagen.

Annual vehicle sales in Europe have gone down compared to the period before the Covid-19 pandemic and are set to stay lower against that baseline, Antlitz explained. He said he expects around 2 million fewer cars to be sold every year in the future in the European market, compared to the pre-pandemic period.

Antlitz estimates that Volkswagen holds around a quarter of the European market share, meaning that the decline 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 said it felt that its its employment protection agreement, which has been in place since 1994 and protects the workforce in Germany until 2029, may need to end.

Speculation about Volkswagen site closures in Osnabrueck in Lower Saxony and Dresden in Saxony mounted on Tuesday.

"It is our joint responsibility to improve the cost efficiency of the German sites in particular. We need to increase productivity and reduce costs," Antlitz said. "We still have a year, maybe two years, to turn things around. But we have to make use of this time."

'Everything is at stake'

Volkswagen's work council, which is comprised of staff members elected to represent employee interests within the company, and major German industrial union IG Metall have been highly critical of the plan.

Daniela Cavallo, a leading representative of Volkswagen's General Works Council, said in a speech on Wednesday that the response proposed by the carmaker's management "is not just a disgrace. It's a declaration of bankruptcy."

"In short: everything is at stake," Cavallo said as she addressed workers at the firm's plant in Wolfsburg.

"And what can you come up with? Closing factories? Terminations for operational reasons? Cutting wages? Such ideas would only be admissible in one scenario! And that is if the entire business model is dead," Cavallo said, according to a CNBC translation.

Cavallo urged Volkswagen's management to come up with a plan that does not involve shutting German factories.

German media had previously quoted Cavallo as saying that she was expecting Wednesday's townhall to be fully attended, and for workers to make their frustrations clearly and loudly.

Shares of Volkswagen provisionally ended 1.2% lower on Wednesday. The firm's stock price has tumbled by more than one-third over the past five years.

The downturn comes amid a difficult economic environment for the carmaker along with an influx of new rivals in Europe, as Volkswagen attempts to survive the transition to electric cars.

CEO Blume seen as 'more of an insider'

Philippe Houchois, head of global autos at Jefferies, told CNBC's "Squawk Box Europe" on Monday that Volkswagen CEO Oliver Blume would try to ease the resistance against the 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, to change some of the resistance to, to adapt at Volkswagen," he said.

Houchois also said that Volkswagen management and employee representatives might not be that far apart when it comes to the basics, based on their comments from recent days.

"It's the question of how they get to an agreement or the process to actually work together, but the endgame seems to be understood on both sides," he said.

The potential issues at Volkswagen come at a difficult time for both the broader German economy and for the country's auto industry specifically, as an array of challenges weigh on the sector.

German Chancellor Olaf Scholz has spoken with both Volkswagen's management and the chair of the firm's works council, according to government spokesman Wolfgang Buechner. He added that Scholz continues to follow the situation "very closely."

On Wednesday, the Ifo institute said that business climate in the German automotive industry pulled back again in August, falling to negative 24.7 points from the previous month's print of negative 18.5 points. Business expectations for the coming six months were "extremely pessimistic," Ifo said.