Volkswagen announced on Thursday that it will slash its model lineup by as much as half and reduce annual production capacity from 10 million to 9 million vehicles, following a supervisory board meeting that stopped short of approving management’s more radical proposals to cut 100,000 jobs and close four German factories. The plan, presented by CEO Oliver Blume, marks the most sweeping restructuring in the 89-year-old company’s history and signals a retreat from the sprawling portfolio that once underpinned its global dominance.

The board’s decision reflects a collision of external pressures and internal governance constraints. US tariffs of 25% on imported cars have hit Porsche and Audi exports, while Volkswagen’s sales in China—long its profit engine—fell 20% in the first quarter amid fierce competition from local electric-vehicle makers such as BYD. Group profit dropped 28% to €1.6 billion in the same period. Management argues that the business model of developing and exporting cars from high-cost Germany is no longer viable, and that the €11 billion in cost savings targeted by 2030 requires far deeper cuts than the 35,000 job reductions already agreed for the VW brand.

Labour representatives, who hold half the seats on the 20-member supervisory board, immediately pushed back. IG Metall official Thorsten Groeger warned of a “major conflict” if management does not change course, while works council chief Daniela Cavallo called the board’s treatment of the workforce “the height of disrespect” and demanded Blume address staff directly by Friday. Protests erupted at plants in Wolfsburg, Zwickau, and elsewhere, with workers brandishing banners reading “United, fighting for our future.” The state of Lower Saxony, which holds a blocking minority stake, dismissed as “complete nonsense” reports that it might accept factory closures, further complicating any push to shutter sites in Hanover, Emden, Zwickau, or Neckarsulm.

The standoff leaves the company’s restructuring in limbo. While the model-range reduction and capacity cut were formally announced, the fate of the four plants and the scale of job losses remain unresolved. The works council has threatened extraordinary all-company meetings after the summer break if Blume fails to provide clarity. With labour and the state government able to veto board decisions, the next milestone is Blume’s scheduled address to workers, which will test whether management can build a consensus for cuts that analysts in Frankfurt describe as essential to restoring competitiveness against Chinese rivals that now outsell Japanese brands in Europe.