Volkswagen has reported a 60% drop in profits amid a slump in sales in China, with the carmaker emphasising the difficulties it faces as it prepares to close factories in Germany for the first time.

Germany’s biggest carmaker has told workers it is considering shutting three plants serving its main Volkswagen brand in its home market and cutting staff pay, raising the prospect of an extended battle with unions representing 120,000 German employees.

Carmakers around the world are struggling with limp demand for new vehicles as higher interest rates take their toll, while several – including VW’s German rivals BMW and Mercedes-Benz – have reported that demand in China in particular has dropped. The British sportscar brand Aston Martin also confirmed on Wednesday that the “weak macroeconomic environment in China” was dragging it back.

The older manufacturers are also having to come up with significant investment to switch from petrol and diesel production to electric, but growth in sales of battery electric cars has slowed in some key markets. At the same time, new electric car producers from China are trying to win market share.

VW remains profitable but earnings before tax dropped almost 60% to €2.4bn (£2bn) in the quarter from July to September, down from €5.8bn a year earlier.

The company said sales in China over the first nine months of 2024 were down 12%. Western European sales fell 1% over the same period.

Arno Antlitz, VW’s chief financial officer, said the results “reflect a challenging market environment” and added that they “underline the importance of delivering on the performance programmes we have launched across the group”.

He said: “Volkswagen brand reported an operating margin of only 2% after nine months. This highlights the urgent need for significant cost reductions and efficiency gains.”

Volkswagen also released a statement on Wednesday from its chief negotiator, Arne Meiswinkel, who said “the situation is getting worse”, before talks with unions. He also highlighted the low profit margin for the VW brand.

“This is not enough to be able to invest in our future,” he said. “Only those who do business successfully can offer secure jobs. We must increase our efficiency and reduce costs.”

The company’s electric vehicle sales dropped by 4.7% year on year, which the company blamed on “industry-wide buyer reluctance”. However, much of the decline has been driven by Germany, which slashed subsidies for electric vehicles at the start of the year.

Aston Martin reported a loss before tax of £12.2m for the third quarter, down from £118m a year before. However, it has lost £229m over the course of 2024, and its net debt increased by almost £500m during the quarter to £1.2bn.

The British carmaker’s share price rose by 2.4% in early trading, but it remained 30% below the price last month when it issued a bleak profit warning. The company blamed parts delays as well as Chinese sales weakness.