By Victoria Waldersee

BERLIN Volkswagen is running behind schedule in defining key measures of a planned 10 billion euro ($10.5 billion) cost-cutting drive for its namesake brand, two people familiar with the matter said, as talks with powerful labour leaders drag on.

The volume brand of Europe's top carmaker said in June that the drive's measures, designed to help it meet a return-on-sales target of 6.5% by 2026, were expected to be in place by October 2023.

The first meeting with workers representatives, however, did not happen until early October and key measures are now expected to be defined by year-end, the sources said.

Return on sales is a metric used to evaluate a company's operational efficiency.

A delay would mark a setback for Volkswagen, which is in the midst of a strategy shift and has pledged to slash fixed costs and improve productivity to boost margins in the face of sagging stock-market performance.

Volkswagen has said that cost-cutting plans would include focusing on fewer high-volume models as well as streamlining production of VW passenger cars, SEAT/CUPRA and Skoda.

The Volkswagen brand has the company's highest sales volume by far, but margins traditionally lag behind luxury Audi and Porsche vehicles.

The company plans to implement similar cost-cutting drives, dubbed 'performance programmes', across all brands, with finance chief Arno Antlitz in July demanding progress by the end of the year.

A Volkswagen brand spokesperson confirmed that talks began with workers in early October and that it would not comment further on the timeline or content of discussions.

Brand chief Thomas Schaefer said last month the company was working on a concrete package of measures "by autumn."

Labour representatives, including the head of Volkswagen works council Daniela Cavallo, make up half of the company's supervisory board per German corporate governance law for large firms.

A works council spokesperson confirmed a first meeting had taken place but declined to comment further on the timeline.

"This was just the start," the spokesperson said of the meeting, adding the works council would not accept any cuts to collective bargaining agreements or threats to job security.

Cavallo, last month criticised that management still had not provided more information on what the programme entailed.

($1 = 0.9484 euros)

(Reporting by Victoria Waldersee, Editing by Christoph Steitz and Rod Nickel)