Mercedes-Benz freezes German investment, warns of overseas plant closures

Mercedes-Benz is considering factory closures in Germany and has suspended new investment in the country until it secures an agreement on cost reductions, as intensifying competition from Chinese automakers puts further pressure on the struggling carmaker.

The warning came in an internal interview circulated to employees on Thursday, in which management board member Britta Seeger called for a more concrete examination of potential plant closures. The Stuttgart-based automaker is already negotiating with employee representatives over savings measures after a sharp decline in sales in China weighed on its earnings.

"We are now forced to examine more closely which German sites we should close if we cannot change our cost structure," management board member Michael Schiebe said in the interview.

The investment freeze leaves little room for delay. Decisions on the next generation of vehicles need to be made now, Schiebe said, while new spending on German production facilities will remain suspended until an agreement on lower costs is reached.

The pressure comes as Mercedes-Benz faces a tougher environment in China, where domestic manufacturers are gaining ground and competition has intensified across the automotive market. Falling sales in the country have added to the company's earnings challenges, prompting management to push for deeper savings at home.

But negotiations with workers have exposed a growing divide over how those savings should be achieved. IG Metall, Germany's powerful metalworkers' union, is demanding a 5% wage increase, a proposal Seeger described as "completely excessive".

Management is also seeking to increase working hours without additional pay and has questioned the future of Germany's traditional 35-hour working week, a long-standing arrangement in the country's metalworking and automotive industries.

The proposals form part of a broader productivity drive aimed at lowering manufacturing costs. Yet the changes would require employees to accept longer working hours without a corresponding increase in wages, making the negotiations particularly contentious.

"These are uncomfortable issues," Seeger acknowledged, arguing that changes to working conditions were the only way to preserve jobs in Germany.

Despite intensive discussions with employee representatives, no clear path towards an agreement has emerged, Seeger said. The company is still seeking a solution to its cost pressures as decisions on future vehicle production approach.