The specialist firm, most famous for its Karmann Ghias, has made more than 3.3 million convertibles for larger companies since 1949, but the recent collapse of the auto market sealed its fate.
It went bust last week and has had to switch its focus to car parts production in order to stay in business, although there is confidence that a restructuring can save it.
“We could no longer avoid shutting down the vehicle assembly line because auto manufacturers' strategies have changed,” the company's administrator Ottmar Hermann said.
More than 2,000 people work for the firm, based in Osnabrück, but relations between management and unions has been seriously damaged by recent events.
According to the Financial Times Deutschland on Monday, a row has broken out over why the company collapsed, with management naming the social provision for workers as the decisive factor.
A company spokesman told the FTD that 2,240 workers had been given their notices, and that the agreed social plan to help them was going to be cancelled, as there was no money to pay for it.
Hartmut Riemann, of the IG Metall union said: “It is outrageous that the insolvency should be blamed on the social plan costs, when they are not even paying severance pay.”
He said the company had not even ensured that full wages would be paid during the workers' period of notice.
A company spokesman told the FTD that it had spent nearly a year trying to find a buyer for all or part of the firm.