The company will be hoping that its road ahead stays clear

The firm is hoping that two years without pay rises will save 2bn euros ($2.4bn; �1.3bn) by 2010.

A similar offer at DaimlerChrysler succeeded in achieving labour costs in exchange for job guarantees, while Opel is also hoping for a wage freeze.

But with formal talks due in September, VW unions said the suggestion was a "distraction tactic".

"Pay freezes for the top are not the same as pay freezes at the bottom," said Hartmut Meine, regional head of key engineering union IG Metall.

A 4% pay rise for the 103,000 staff at VW was "indispensable", he said.

Profit shortfall

Unlike DaimlerChrysler, no job guarantees are on offer at VW, which - with the exception of the management pay freeze - is offering little negotiating room.

Like other carmakers, it says that costs in the German auto industry are making it uncompetitive, forcing a concerted effort to reshape the way the business works.

VW workers earn about 20% more than the industry average.

The firm recently warned profits for 2004 would fall short of expectations by as much as 600m euros.

But its demands of its workers are well below Opel's decision to call for a pay freeze till 2009 alongside an extension of the working week to 40 hours from 35.

The man behind VW's pay freeze plan, personnel chief Peter Hartz, is also the man who drew up the blueprints for the German government's controversial labour market reforms.