Unions on Wednesday criticised Volkswagen for failing to make specific proposals in the first round of talks over the German auto giant's drastic cost-cutting plan, as thousands of workers picketed the meeting.

The discussion with management was "disappointing, even sobering", Thorsten Groeger, lead negotiator for the IG Metall union, told reporters in Hanover.

Volkswagen "did not concretise its proposal and did not sketch out a concept for the future" in the opening talks, Groeger said.

"Plant closures and mass layoffs remain on the table," Groeger said.

Europe's biggest carmaker shocked its 300,000 employees in Germany this month when it said it was considering closing factories in the country -- a potential first in the group's 87-year history.

The move sparked staff fury. Representatives accuse VW's corporate leaders of mismanaging the 10-brand group and putting profits above building a sustainable future for the manufacturer.

After Volkswagen's bombshell announcement, negotiations on a new pay deal were brought forward by a month, with talks held on Wednesday in Hanover.

Outside the negotiation room, VW employees from plants across Germany carried banners criticising management and created a deafening chorus of whistles to show their disapproval.

The situation at Volkswagen was "serious", the management's lead negotiator, Arne Meiswinkel, said after the talks.

The manufacturer has been hit hard by high manufacturing costs, a stuttering switch to electric vehicles, and rising competition in key market China.

"We are at risk of being overtaken by international competition," he said. "We therefore have to take action. To remain competitive, we have to comprehensively restructure Volkswagen together now."

Volkswagen rejected the union's proposal of a seven-percent pay rise for employees, Meiswinkel said.

"We need to lower costs, not raise them," he said, adding that the group's savings programme would "require a contribution from employees.

At the demonstration outside, Volkswagen worker Diana Hein, 47, told AFP the shock announcement had created a sense of "uncertainty" among employees.

"When they close one factory now, in two or three years it will be the same situation again," said Hein, a union representative at the group's flagship factory in Wolfsburg.

Management needed to be more "transparent" about their plans, she said.

"We don't have a concept for the future at the moment -- only savings plans," said Jan-Soeren Luehr, 37, who also works at the Wolfsburg plant and is active in the union.

The negotiations will set the terms of employment for workers in Germany, some 120,000 of whom work at the core VW brand.

The Volkswagen Group also includes Seat, Skoda, Porsche and Audi.

Stephan Weil, premier of Lower Saxony state, which is a major shareholder in Volkswagen, counselled against large-scale job cuts.

"We expect all those involved to find a joint way forward," Weil told deputies in the regional parliament in Hanover. (AFP)