Mercedes-Benz Freezes All Investment in Germany and Weighs Plant Closures as Labor Talks Stall

Mercedes-Benz is halting all further investment at its factories in Germany and is now seriously weighing plant closures, after months of talks with workers' representatives failed to produce the cost cuts management says it needs, according to a company memo seen by Reuters on Thursday.

Production chief Michael Schiebe said in an interview on the company's intranet that the board had jointly decided to stop all further investment at German locations, citing high costs and the lack of an agreement on savings. Board member Britta Seeger said the company still hopes to keep every plant open. "We all want to avoid plant closures at all costs," she said in the memo, but added that the option must now be examined in more detail.

The dispute comes down to what it costs to build a car in Germany. According to Mercedes, one labor hour at its German plants can cost up to five times as much as at sites in Eastern Europe, Euronews reported. Management has asked for concessions on working conditions, including longer hours without higher pay, and cuts to profit sharing and holiday and Christmas bonuses have been discussed, prompting protests from employees.

The union is pushing in the other direction. IG Metall is seeking a 5% raise in wage talks, a demand Seeger called "totally excessive," saying German labor costs are already too high by international standards, AFP reported. Schiebe told employees that management could not find a way forward with the unions despite many intensive discussions.

Schiebe had warned staff in September that two German plants could close without progress, and Reuters reported that the prospect now looks more likely. Current thinking points to one vehicle assembly plant and one powertrain plant, Euronews reported, citing Zeit. The company's assembly sites include Sindelfingen, Rastatt and Bremen, and its powertrain operations include Stuttgart-Untertürkheim, Berlin, Hamburg, Kamenz and others; which plants could be affected is not yet known.

Schiebe said Mercedes still hopes for a breakthrough and wants its next generations of vehicles built in Germany, but warned that if the cost structure does not change, new products might be made only abroad, AFP reported.

The move caps a hard year for one of the world's most famous car brands. Last month Mercedes cut its profit outlook to 5.8 billion euros, roughly flat with 2025, after earlier expecting growth of at least 15%, according to AFP. It also lowered the expected adjusted return on sales for its car division to 2% to 3%, from 3% to 5%, blaming tougher conditions in China and higher costs, ad-hoc-news reported. Its shares fell about 2.6% on Thursday, and analysts at Jefferies downgraded the stock to hold earlier in the week.

Mercedes is not alone. BMW and Volkswagen have also cut their forecasts, citing competition from Chinese automakers such as BYD and Xiaomi, and Volkswagen plans to cut 120,000 jobs worldwide by the end of the decade, AFP reported. Auto analyst Ferdinand Dudenhoeffer told AFP the German car industry is in its deepest crisis since its founding, and that without a fundamental reset of its cost structure it could simply die out.

There is a lesson here for American policymakers and voters. Factories go where they can build a good product at a price customers will pay. When labor costs and rigid rules push expenses too high, even a storied national champion starts looking elsewhere.

The contrast with recent news at home is striking. This week Honda announced a new $3 billion plant in the United States that is expected to add 2,000 jobs, Reuters reported. Investment follows opportunity, and Washington and state capitols that keep taxes, energy prices and red tape in check will keep winning those decisions.

For now, the next move belongs to Mercedes' works council and IG Metall. A credible cost agreement could let the company revisit its investment freeze, while a continued standoff could push closure plans toward concrete decisions, ad-hoc-news noted. German autoworkers and their families will be watching closely, and so will every competitor around the world.