Volkswagen faces tense townhall as workers battle possible plant closures

Management at German automotive giant Volkswagen is set to go toe-to-toe with workers on Wednesday, as senior business leaders prepare to present details about possible cuts that could include historic domestic factory closures.

Volkswagen on Monday warned that it was no longer able to rule out closing plants in its home country of Germany — a measure that was previously considered off the table and has not ever been taken in the company's record.

The auto company also said it felt that its its employment protection agreement, which has been in place since 1994 and protects the workforce in Germany until 2029, may need to end.

Speculation about Volkswagen site closures in Osnabrueck in Lower Saxony and Dresden in Saxony mounted on Tuesday.

Volkswagen's work council, which is comprised of staff members elected to represent employee interests within the company, and major German industrial union IG Metall have been highly critical of the plan and announced they would work against it.

Daniela Cavallo, a leading representative of Volkswagen's General Works Council, earlier in the week said that the group would display "fierce resistance" against the plans, according to a CNBC translation. There was an understanding in place over decades that profitability and job security were equal goals, but the company had now decided to end this deal, she said.

The most important thing now was getting a picture of the future and knowing where the business is headed, Cavallo added.

German media also quoted her as saying that she was expecting the townhall of Wednesday to be fully attended, and for workers to make their frustrations clear loudly on the day.

Philippe Houchois, head of global autos at Jefferies, told CNBC's "Squawk Box Europe" on Monday that Volkswagen CEO Oliver Blume would try to ease the resistance against the potential plans.

"Blume is a different breed from his predecessor. He's probably more of an insider and will see to what extent he is able to, to change some of the resistance to, to adapt at Volkswagen," he said.

Houchois also said that Volkswagen management and employee representatives might not be that far apart when it comes to the basics, based on their comments from recent days.

"It's the question of how they, they get to an agreement or the process to actually work together, but the endgame seems to be understood on both sides," he said.

The potential issues at Volkswagen come at a difficult time for both the broader German economy and for the country's auto industry specifically, as an array of challenges weigh on the sector.

On Wednesday, the Ifo institute said that business climate in the German automotive industry pulled back again in August, falling to negative 24.7 points from the previous month's print of negative 18.5 points. Business expectations for the coming six months were "extremely pessimistic," Ifo said.