Volkswagen AG managers are facing hefty pay reductions in the coming years as part of an agreement with labor to make Europe’s biggest automaker more competitive.

Volkswagen on Friday announced sweeping changes to its German operations, including more than 35,000 future job cuts and sharp capacity reductions in a last-gasp deal between Europe's top carmaker and unions to avert mass strikes.

VW Group threatened to close up to three plants in Germany, but a deal with workers means those plants are safe.