German automaker Volkswagen could book up to €4 billion ($4.4 billion) in provisions for planned capacity reduction by the fourth quarter, analysts at Jefferies said Monday.

The analysts were travelling with Volkswagen executives in North America. 

“The rationale to re-size VW’s namesake is not new but management’s sense of urgency and determination to tackle excess capacity and spending patterns both are,” Jefferies analysts wrote in a note seen by Kallanish. “Three days on the road in NA [North America] with management gave us conviction that there is no plan B that would rule out capacity reduction.”

They add these decisions could lead to provisions of €3 to 4 billion “as early as” the fourth quarter.

The comments come after the automaker early this month announced cost-cutting plans, including job cuts and factory closures following lower demand and underutilised capacity. It also said it would end a job security scheme, further fuelling tensions between the company and labour unions. 

Volkswagen Group and IG Metall – Germany’s most powerful workers union – are set to negotiate a new labour agreement on 25 September.

“Unions should feel pressure to reach new agreements while VW will be in position to force lay-offs,” the analysts add. “There is risk of plant disruption, but unions can only strike on pay, not plant closure or lay-offs if the latter are not contractually protected.”

Jefferies adds the VW brand is considering the closure of two to three facilities, with four to five German sites under consideration. This is equivalent to 500,000 to 750,000 units, with over 15,000 headcount reduction. 

Shares of Volkswagen AG were trading 1.15% down at the time of writing.