Volkswagen has reached an agreement with the IG Metall trade union that will prevent factory closures in Germany and immediate forced redundancies.
However, the two countries have agreed to cut more than 35,000 jobs across the country in a “socially responsible way” by 2030 to save around €15bn (£12.4bn).
Germany's biggest carmaker earlier warned it may have to close plants in the country for the first time in a bid to cut costs.
After protracted negotiations that began in September, the union said Friday that the two had “managed to find a solution” that secures jobs and allows for future investment.
VW was considering closing up to three factories in Germany and was urging its employees to take a 10% pay cut.
At the time, the union was demanding a 7% increase.
Although the deal will also reduce production capacity at the plants, it has been celebrated by union leaders.
“No site will be closed, no one will be fired for operational reasons and our company wage agreement will be secured in the long term,” said IG Metall works council head Daniela Cavallo.
“We have achieved a stable solution in the most difficult economic conditions,” she added.
35,000 job cuts by 2030 expected to be found through various solutions such as early retirement being offered.
Under the agreement, a 5 percent wage increase that was previously agreed will also be suspended in 2025 and 2026.
The union said it would help “support transformation” at the company.
The number of apprenticeships offered each year in Germany will also be reduced from 1,400 to 600 from 2026. and will seek to transfer some of the production to Mexico.
It is also looking at alternative options for its sites in Dresden and Osnabrück.
But Oliver Blum, VW's chief executive, said in a statement that the agreement was “an important signal for the future viability of the Volkswagen brand”.
The closure of factories in Germany would be unprecedented in the manufacturer's history.
VW, along with other German automakers, has been hit hard by a slump in demand for their cars in China, a previously lucrative market.
At the same time, Chinese brands are entering Europe, increasing competition for sales.
During the talks, about 100,000 workers joined short, so-called called “warning strikes” at sites across the country to put pressure on company management.
The latest round of talks began on Monday, with negotiators apparently determined to settle the issues before Christmas.
German Chancellor Olaf Scholz also welcomed the announcement, calling it a “good, socially acceptable decision”.