Industrial action at Europe's biggest carmaker Volkswagen seems inevitable after its chief executive said the company will push ahead with the previously announced closure of three factories.

Unions had put forward a set of proposals around pay and productivity that they said could save the company large amounts of money, and avoid the need for redundancies, but Volkswagen CEO Thomas Schafer told the Welt am Sonntag newspaper that the company had to "reduce our capacities and adjust to new realities".

Hoping for natural wastage by early retirements and offers of payoffs would not be adequate or fast enough, he added, so redundancies would be necessary for the company to try and stay competitive.

"There is no point in dragging out a restructuring until 2035. The competition would have left us behind by then," he said. "Ultimately, any solution must reduce both overcapacity and costs. We can't just stick a band-aid on it and keep dragging it along. That would come back to bite us later in a serious way."

Any factory closures would be the first that Volkswagen had made on German soil in the company's 87-year history. Rising labor costs, a limited impact in the growing electric vehicle market, and competition from China are just some of the factors that have put Volkswagen in its current predicament.

Industrial action is set to begin at the start of December, with the IG Metall union saying this would put the company "under massive pressure".

Union negotiator Thorsten Groger said the prospect of redundancies and factory closures was "leading to the threat of a labor dispute the intensity of which the country has not seen for a long time".

Volkswagen's problems are symptomatic of a wider malaise in Germany's economically vital auto industry.

Several car-part supply companies have announced layoffs recently, and last Friday, Bosch announced 5,000 redundancies, on top of 7,000 others that were confirmed in October, in addition to reduced hours and pay cuts for other workers.

With its coalition government having broken up, Germany faces national elections early in 2025, and the potential economic impact of a change of leadership in the US means that it will go into the new year with anxiety among its wider business community.

Data from the Ifo Institute for Economic Research showed that, based on soundings from 9,000 companies, confidence in the German economy fell from a rating of 86.5 in October to 85.7 in November, 0.3 points more than had been expected.

Franziska Palmas, senior Europe economist at London-based research company Capital Economics, said: "The (Ifo) readings confirm that the German economy remains in the doldrums."

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