Mercedes-Benz has halted all further investment in its German manufacturing facilities and is weighing potential factory closures amid a bitter breakdown in labor cost negotiations with union representatives, according to a report in Handelsblatt published on Thursday.
The decision marks a sharp escalation in the crisis facing Germany’s automotive industry. Facing falling sales in China and high domestic expenses, company leadership told employees via an internal intranet memo that current cost structures make further domestic capital outlays impossible.
Board Halts Further Investments in German Sites
Michael Schiebe, the board member responsible for production, announced in an internal interview published on November 12 that the executive board took the action jointly after months of discussions failed to produce an agreement with employee representatives, Anadolu Ajansı reported. Schiebe warned that without structural adjustments, production of future vehicle generations will take place exclusively abroad.
“We have jointly decided in the board to halt all further investments in the German sites,” Schiebe told employees, according to Electrive.
Britta Seeger, the board member in charge of human resources, said that the company is now forced to evaluate which domestic locations remain economically viable. Management said that while plant closures are undesirable, the option must now be examined in concrete terms.
“We all want to avoid plant closures at any cost, but we must now examine this option in concrete terms,” Seeger said.
“at present we see no way to a solution” Britta Seeger, the board member in charge of human resources, said in an internal interview, explaining that the aim remains a joint package delivering noticeable savings that is socially acceptable.
Currently, Mercedes operates component plants situated in Stuttgart-Untertürkheim, Affalterbach near Stuttgart, Berlin, Hamburg, Kamenz, Kölleda, and Arnstadt.
High Labor Costs Drive Demands for Concessions
At the center of the dispute are production and labor expenses. According to data from the German Association of the Automotive Industry (VDA) for 2024, hourly labor costs in the German auto industry stood at €65.5 (approximately $72), compared to €13.44 in Romania and an estimated €44 (approximately $49) in the United States.
“German labor costs are up to five times more expensive than in Eastern Europe,” Schiebe said, according to BigGo Finance.
To bridge this gap, Mercedes has pressed employee representatives for concessions, including extending weekly working hours without extra pay and trimming special payments such as profit sharing, holiday bonuses, and Christmas bonuses. Chief Executive Officer Ola Källenius recently argued that domestic labor costs must drop toward U.S. levels, noting that “cutting (wages) from 100 to 80 is possible,” as reported by BigGo Finance.
The IG Metall union has pushed back against the proposed reductions.
“simply extending working hours when plant utilization is low is not a solution” Ergun Lümali, chairman of the Mercedes-Benz general works council, argued, according to the reporting.
Britta Seeger, a member of the automaker’s management board, told employees in the internal document that she is fully aware the 35-hour week was hard-fought and means a great deal to many colleagues, while noting that the company is reviewing additional compensation elements and special payments including profit-sharing along with collectively agreed components like vacation and Christmas bonuses.
Deteriorating Financial Performance Lowers Margin Forecasts
The investment freeze coincides with deteriorating financial performance across the car division. The adjusted return on sales for the car division fell to 2.5 percent in the third quarter, down from 4.8 percent a year prior.
In response to these headwinds, Mercedes lowered its full-year 2026 margin forecast for the passenger car division to 2 to 3 percent, down from a previous expectation of 3 to 5 percent. Källenius also announced in late October that the company would reopen its voluntary severance program in Germany in December to cut fixed costs.
The pressures facing Mercedes reflect a broader contraction in the German automotive sector. Volkswagen is pursuing a restructuring that includes reviewing up to four plant closures and cutting tens of thousands of jobs, while parts supplier Schaeffler announced plans to eliminate 3,460 positions across Europe and close five sites.
Automotive expert Ferdinand Dudenhöffer sees these developments as a consequence of the long-known competitiveness problems of Germany as a car manufacturing location.