Mercedes-Benz announced that it will not move forward with any additional capital projects at its domestic production sites. The pause comes as the company grapples with a protracted negotiation deadlock over what management describes as excessively high labour costs in Germany. The decision, presented by production chief Michael Schiebe, signals that the board is prepared to rethink the geographical placement of its next-generation vehicle programmes.
Board declares investment freeze and weighs plant closures
In an internal communication, Schiebe stated that the board has collectively agreed to suspend all forthcoming investment activities at German locations. He highlighted that the hourly cost of production in Germany can be up to five times the price paid in Eastern European facilities, and even lower than many U.S. plants. Because vehicle development cycles require long lead times, the automaker now faces an urgent choice: either adapt the cost structure or relocate the assembly of future models abroad. Schiebe warned that, without meaningful wage adjustments, certain German sites could be earmarked for shutdown.
Labour conflict centres on the 35-hour week and bonus reductions
The stalemate revolves around the proposed removal of the 35-hour workweek and a suite of special payments, including holiday and Christmas bonuses as well as profit-sharing schemes. Management seeks to keep employee hours extended while maintaining current pay levels, a move that would trim annual savings by roughly €800 million. Union representatives, on the other hand, demand guarantees of job stability and utilisation of German plants before conceding on remuneration. The dispute has intensified since late June, with neither side offering further concessions.
Wider industry pressure adds to Mercedes’ dilemma
Mercedes is not isolated in facing cost-related strain. Volkswagen has launched its most extensive restructuring programme to date, and supplier Schaeffler recently disclosed plans to cut 3,460 jobs and shut five European sites, four of them in Germany. A decline in demand for traditional combustion-engine vehicles (exacerbated by weaker sales in China, tariff pressures from the United States, and the fallout from the Iran conflict) has amplified the urgency for cost cuts across the sector. Germany’s overall manufacturing expense, combined with a shift toward electric mobility, is reshaping the competitive landscape.
Potential impact on Germany’s automotive footprint
Mercedes currently operates vehicle assembly plants in Sindelfingen, Bremen and Rastatt, complemented by component facilities in Stuttgart-Untertürkheim, Affalterbach, Berlin, Hamburg, Kamenz, Kölleda and Arnstadt. If the board proceeds with closures, the affected regions could see a sharp reduction in employment and ancillary business activity. Conversely, a successful renegotiation could preserve the current network, albeit with a revised cost framework. The outcome will likely influence not only the German automotive labour market but also the strategic positioning of Europe’s luxury-car segment.
