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Volkswagen AG is ending job protections for auto workers in Germany as part of its cost-cutting push, setting up a showdown with unions as the country’s most important industry fights for its future.

The manufacturer on Sept. 10 canceled several agreements linked to a three-decades-old pact that was supposed to safeguard jobs until 2029, VW said. Guarantees will effectively run out by the middle of next year.

Ending job security commitments at a company synonymous with German engineering prowess signals how far Europe’s biggest economy has fallen behind on competitiveness. Last week, VW also announced plans to potentially close factories in Germany for the first time after previous measures to cut costs fell flat.

The moves are meant to “reduce costs in Germany to a competitive level,” VW’s human resources chief Gunnar Kilian said in a statement.

VW’s main target is its underperforming namesake passenger car brand, whose profit margins are getting squeezed amid a sputtering transition to EVs and a consumer spending slowdown. Carmakers in Europe are also struggling to compete with Tesla Inc. and new entrants from China led by BYD Co.

Cutbacks at VW are harder to push through than at other companies. Half the seats on the company’s supervisory board are held by labor representatives, and the German state of Lower Saxony — which owns a 20% stake — often sides with trade union bodies. The company, which employs almost 300,000 people in Germany, last week defended its closure plans, saying flagging car sales have left it with about two factories too many.

“We will put up a fierce resistance to this historic attack on our jobs,” Daniela Cavallo, VW’s top employee representative and a supervisory board member, said in a separate statement. “With us, there will be no layoffs.”