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(Adds VW statement, sales data)
SAO PAULO, March 30 (Reuters) - Volkswagen AG has furloughed 4,200 workers at its second largest factory in Brazil for three weeks, a local union said on Monday, as disappearing demand forces carmakers in the country to manage excess capacity.
A representative of the metalworkers union of Taubate, about 90 miles (150 kilometers) northeast of Sao Paulo, said the move had stopped production at the plant, which made the top-selling Gol hatchback, the Voyage sedan and the Up city car.
VW representatives declined to comment on the situation at the factory, but issued a brief statement saying "Volkswagen has made use of flexible methods to adjust production volume to the demands of the market."
As exports to Argentina have plunged and demand in Brazil hits its worst downturn in over a decade, VW is cutting a shift at the Taubate plant and sending workers home for three weeks as part of the transition, according to the union official.
Just over a year ago, VW announced an investment of 1.2 billion reais ($370 million) at the plant to produce the Up, but the new model has struggled to catch on in a weak market.
The Up was the ninth most sold car in Brazil in January and February, selling at about half the pace of Fiat Chrysler Automobiles' market-leading Palio. Volkswagen's weak start to the year has seen it slip into third place in Brazil by sales, behind Fiat and now General Motors Co.
"If the Up were selling well, Volkswagen would be suffering a little less. It would dampen the critical situation for the industry this year," said automotive market analyst Raphael Galante of Oikonomia Consultants.
VW is one of many automakers working to cut costs in Brazil, where sales and output are down over 20 percent in the first two months of 2015. Jobs in the auto industry have fallen 8 percent in the 12 months through February.
Workers at a Mercedes-Benz truck factory outside of Sao Paulo voted on Wednesday to stop work for 24 hours in a protest over 244 colleagues who were fired by the heavy truck unit Germany's Daimler AG.
Last week, Ford Motor Co struck a deal with workers at a nearby factory to open a voluntary buyout program aimed at reducing the 400 to 600 excess workers at the plant, in the company's estimates, according to a local union spokeswoman.
VW's efforts to cut jobs at another plant near Sao Paulo in January triggered a 10-day strike, forcing the company to reverse layoffs of 800 workers and negotiate a new labor deal through 2019.
$1 = 3.26 reais Reporting by Alberto Alerigi Jr.; Writing by Brad Haynes; Editing by Christian Plumb, Bernard Orr