By Victoria Waldersee

BERLIN (Reuters) – Talks between Volkswagen managers and labour leaders are expected to stretch into the night for a second day, a source close to the matter said on Tuesday, in a sign the two sides are still far apart in a battle over German cost cuts.

A 13-hour negotiation round on Monday failed to produce an agreement. If a deal is not reached, labour representatives have threatened to escalate strike action in the new year.

Around 100,000 workers have already laid down tools for several hours on two separate occasions in the past month in the largest strikes ever seen at the carmaker, protesting against management plans to slash wages, cut capacity and potentially shut German plants for the first time in the company’s history.

With the support of the union’s board, which would meet on Friday if talks collapse, worker representatives at each plant could vote for 24-hour or open-ended strikes in January.

More of the shorter strikes, called “warning strikes”, could also take place, with a union spokesperson saying nothing would be decided until talks had run their course this week.

Unions said late on Monday it was still “far from clear” whether Tuesday’s talks would bring the two sides closer, with labour representatives adamant any solution must exclude plant closures and the carmaker insisting it cannot rule them out.

Europe’s biggest automaker is struggling with falling demand, rising costs and cheap competition from China.

Both sides had expected the talks to last several days in a last-ditch attempt to reach an agreement before Christmas and avoid the conflict, which ended the formerly peaceful relationship between works council chief Daniela Cavallo and Chief Executive Oliver Blume, from dragging into next year.

“Workers don’t want to go into Christmas in fear,” Cavallo told union members before talks began early on Monday, the fifth round since early September.

(Reporting by Victoria Waldersee. Editing by Rachel More and Mark Potter)