Volkswagen has embarked on crucial discussions with its trade unions, initiating a pivotal negotiation phase that will shape the future of the company’s workforce and operational structure in Germany.

Volkswagen AG and unions start negotiations over wide-ranging cost cuts on Wednesday, with tensions between both sides higher than they’ve been in years.

German automaker Volkswagen rejected trade union demands for pay increases for German workers and continued to warn of deep cuts instead during initial collective bargaining talks on Wednesday. VW earlier this month cancelled a long-standing job security deal with workers and warned that it could no longer rule out mass layoffs or plant closures as part of an austerity plan at the auto brand.