AUTONEWS

Crisis knocks on Mercedes' door

The European automotive industry is going through a difficult period, and the pressure is being felt even more acutely in Germany. Chinese competition, falling demand in certain markets, US tariffs, and high production costs are forcing major manufacturers to rethink their industrial structures.

Against this backdrop—and following moves by the Volkswagen Group and BMW—Mercedes-Benz is also preparing measures to cut costs and reduce its workforce.

For Mercedes-Benz, manufacturing cars in Germany is no longer internationally competitive, primarily due to high labor costs. Michael Schiebe, a Mercedes-Benz production executive, issued a warning to the workforce: "Without cost reductions, it might become necessary to close one car plant and another dedicated to powertrain systems."

Despite this warning, no specific plants have yet been identified as being at risk of closure. "Our goal is to keep all our production facilities in Germany," the executive stated.

To achieve this, Mercedes-Benz aims to cut labor costs in Germany by €800 million. According to Reuters—citing reports from *WirtschaftsWoche*—measures under discussion include changes to working hours and supplementary payments, such as holiday and Christmas bonuses. The company declined to comment on the ongoing negotiations.

The Volkswagen Group surprised the market by announcing the closure of four factories and the layoff of at least a hundred thousand workers, aiming to boost profits that had fallen to worrying levels. However, all signs point to this not being the only German automaker in trouble; Mercedes is also preparing to take drastic measures, including layoffs and plant closures.

German automakers are navigating a precarious period where crises seem to emerge from every direction, and the solutions devised to address the initial problem often create further complications. A prime example is the over-reliance on the Chinese market—the world's largest, yet one governed with an iron fist by the Communist government led by Xi Jinping, where the very types of cars purchased by the public are often dictated by those in power to suit their strategic agenda.

This context is relevant to the difficulties Volkswagen has faced in the Chinese market. The company held the top spot from 1993 until 2023, when it was overtaken by BYD—a competitor that had placed a stronger bet on electric vehicles (EVs) and plug-in hybrids (PHEVs) for the local market. By failing to produce the vehicles Chinese consumers increasingly wanted (EVs and PHEVs), VW saw its sales drop from 3.23 million units in 2023 to 2.93 million in 2024 and 2.69 million in 2025—a decline of approximately 540,000 units over three years. But the worst occurred in 2026, when VW sold only 971,000 vehicles in the first six months—marking the first time the brand had sold fewer than a million cars since 2010.

When this poor performance in China is combined with growing Chinese competition in Europe—a door VW helped open—and stiffer tariffs for entering the US market, it is easy to see why installed production capacity might be excessive; this makes the plan to close four factories in Germany, along with cutting 100,000 jobs by 2030, seem logical. Of course, the current troubles facing VW Group brands were partly caused by German manufacturers' efforts to pressure their government into stopping the European Union (of which Germany is the largest budget contributor) from imposing the 100% tariffs that had been considered—and were implemented in the US—to offset subsidies deemed illegal by the World Trade Organization and the European Commission. Instead, the EU applied lower tariffs, averaging about one-third of that rate, on Chinese electric models exported to the Old Continent.

According to statements made to Reuters, Mercedes is preparing to follow in the footsteps of VW Group—Europe’s largest automotive group (and the second-largest globally), which sold 8.98 million vehicles in 2025 (with the VW brand alone accounting for 4.73 million), far exceeding Mercedes' 2.16 million. "Our goal is to keep all our factories running," said Michael Schiebe, Head of Production for the "Silver Star" brand, adding that if they are unable to achieve this, there are few alternatives. "We would have to close one car plant and one engine plant," Schiebe admitted. The powerful German metalworkers' union, IG Metall, did not take kindly to the factory closures and resulting layoffs—viewing them as a threat from Mercedes—and immediately warned the brand to expect resistance, even though the scale of Mercedes' cuts is less than half of those projected for VW. Interestingly, the situation the manufacturer is facing is also closely linked to China, where Mercedes sales have dropped by 30%, while US tariffs resulted in losses of $1.1 million in 2025 alone.

The Chinese market...The pressure stems from more than just internal costs. Like other major German automakers, Mercedes-Benz is grappling with the transformation of the Chinese market, where local manufacturers are gaining ground—particularly with electrified vehicles.

At the same time, European brands face mounting competition within Europe itself, as well as US tariffs on car imports.

The combination of these factors is challenging an industrial structure built up over decades. Manufacturing in Germany entails higher labor costs than elsewhere, and margin pressures make it increasingly difficult to maintain excess production capacity.

Negotiations between management and worker representatives therefore promise to be pivotal. The general works council has already rejected the threat of plant closures as a tactic to pressure workers into making concessions, while IG Metall prepares for fresh talks regarding labor costs in the sector.

The communist dictatorship led by Xi Jinping even dictates the type of cars the population should buy...The Chinese government, under the leadership of the Communist Party and Xi Jinping, exerts strong regulatory and economic influence over the automotive market, aggressively steering the population toward purchasing electric and hybrid vehicles (NEVs). Although Chinese citizens are free to choose the specific brand or model they prefer from a vast array of private and state-owned options, the State employs strict incentive and restriction mechanisms to shape these consumer decisions.

Control over market direction is exercised on three main fronts:

1. Five-year plans and state targets...The government sets rigorous industrial guidelines. The plan for the 2026–2030 cycle mandates that electrified vehicles account for 70% of passenger car sales in China. The State dictates average fuel efficiency standards for fleets, compelling automakers to produce smaller, more efficient electric cars to meet government targets.

2. Barriers to internal combustion (gasoline) cars...In major Chinese metropolises like Beijing and Shanghai, obtaining a license plate registration for a traditional internal combustion car is extremely difficult and expensive:

• Lottery and Auction Systems: Citizens must enter a lengthy lottery or pay thousands of dollars at an auction just for the right to obtain a license plate for a gasoline car.

• Exemption for Electric Vehicles: Buyers of electric vehicles receive a green license plate almost immediately and free of charge, completely bypassing these restrictions.

3. Subsidies and tax policies...For years, the government has financially stimulated the sector through purchase tax exemptions and direct bonuses. As the market matured, tax rules were updated (with transitions involving partial tax exemptions through 2027) to benefit only models meeting strict requirements for range and battery density set by ministries in Beijing.