* Unions to deny budget backing without production roadmap
* VW eyes another 500 mln eur cost savings -Osterloh
* New model needed at Wolfsburg, Emden or Zwickau -Osterloh (Adds comment from VW, detail and background)
By Andreas Cremer
BERLIN, Aug 9 (Reuters) - Volkswagen's powerful labour unions have called on the company to create more work for its German plants by increasing investment there and creating a new model for local production.
The unions are concerned that a 3.8 percent drop in VW's vehicle production in Germany in the first half of the year, due to waning demand for the current Golf and Passat models, could lead to further cuts in Volkswagen's (VW) high-cost production capacity at home.
Europe's largest carmaker last November agreed with its German unions to cut thousands of jobs at the core VW brand through natural attrition over the next eight years, in exchange for a commitment to avoid compulsory redundancies.
The unions and management earlier this year resolved a dispute over how to implement a turnaround plan for the troubled VW brand but the company still has to come up with a multi-billion-euro investment plan by November.
"The works council views with great concern that the current budget round at VW is not making any headway," VW works council chief Bernd Osterloh told Reuters, criticizing a failure by management to yet say how it plans to use its German production capacity.
"That is completely incomprehensible because a high capacity utilization of German plants is crucial for the success of the company and the jointly agreed future pact."
Osterloh, a member of VW's supervisory board, called for production of a new model to be assigned to one of its three auto-making German plants, which are in Wolfsburg, Emden and Zwickau.
Separately, management should overhaul assembly lines at Wolfsburg, VW's core plant employing over 60,000 people and grappling with low demand for the ageing Golf, to be able to service demand for an extra 40,000 Tiguan sport-utility vehicles (SUVs), the carmaker's most popular model at present, said Osterloh.
Wolfsburg has already been chosen to build a new SUV model for VW's Spanish arm Seat in 2018, using the German group's cost-saving MQB modular platform on which the Tiguan and Golf are based.
"Only by means of a high capacity utilization can we achieve the productivity targets," Osterloh said.
"The issues raised here are relevant and currently under discussion," a spokesman for the carmaker said, declining to elaborate.
VW plans to raise productivity at its German factories by 7.5 percent this year and next, and a further 5 percent in 2019 and 2020, counting on making cuts to fixed costs and fine-tuning its R&D, procurement and production operations.
Investors have said a turnaround at the VW brand is key to reviving the group's fortunes following the costly diesel emissions test-cheating scandal.
Osterloh said the carmaker has earmarked another 500 million euros ($587 million) in cost savings on top of the 1.5 billion of efficiency gains already budgeted for this year, without providing details.
The savings are sustainable and stem from rationalising the range of engines and parts it offers, cutting costs on vehicle and component tests and streamlining work processes, a company source said.
VW has a goal to cut annual costs at the core brand by 3.7 billion euros by 2020, 3 billion of which would affect German operations. ($1 = 0.8515 euros) (Editing by Greg Mahlich)