Exclusive: VW axes McKinsey cuts blueprint as union balks? sources

The cost-cutting target itself still stands, though, the sources said.

Volkswagen and McKinsey declined to comment.

The move underlines how much relations between management and workers have soured at Europe's biggest carmaker, which is struggling to raise profits amid stagnating emerging markets and low growth at home.

Late last month, Chief Executive Martin Winterkorn told employees he sought 5 billion euros worth of efficiency gains at its core passenger-car brand by 2017.

The sources said managers had commissioned McKinsey to help streamline production and cut costs at VW, a company at which employees enjoy multi-year job guarantees.

Last week, Volkswagen said it had replaced its production chief Michael Macht after a new modular vehicle design failed to translate into higher profits at its main factory in Wolfsburg, Germany.

Rather than greater efficiencies in production, the new vehicle assembly components used on Volkswagen's flagship Golf model caused costly overtime work and delays, leading the company to report a drop in operating profit.

($1 = 0.7491 euro)

(Reporting by Edward Taylor, Andreas Cremer, Irene Preisinger; Editing by Maria Sheahan)