Mercedes-Benz has delivered one of its starkest warnings yet about the future of manufacturing in its home country. Production chief Michael Schiebe told employees that one German vehicle-assembly plant and one powertrain facility could ultimately close if the company cannot bring costs down, even as Mercedes insists its preferred outcome is to preserve every German location.
The warning reflects a much larger struggle inside Europe’s automotive industry. Mercedes is confronting high German labour costs, weaker profitability in its passenger-car business, fierce competition in China and a manufacturing network increasingly capable of shifting production to lower-cost countries. At the same time, workers and unions argue that longer hours and factory closures cannot solve problems created by market conditions, corporate strategy and the industry’s costly technological transition.
The Warning Marks a Major Escalation
The closure warning came from Michael Schiebe, the Mercedes-Benz board member responsible for production, quality and supply-chain management. Speaking to employees at Sindelfingen, Schiebe said the company’s objective remains to retain all of its German locations. But he made that commitment conditional on finding measures capable of substantially lowering the cost of manufacturing in Germany. If that cannot be achieved, he warned, Mercedes would have to close one German assembly plant and one German powertrain plant.
That distinction matters. Mercedes has not announced two factory closures, and the company has not identified which locations could eventually be affected. The statement is instead a warning about what management believes could happen if negotiations over productivity and costs fail. Still, it represents an unusually direct message from a manufacturer whose German factories are deeply intertwined with the company’s history. Sindelfingen itself has been producing vehicles for more than a century, making the setting particularly symbolic.
Mercedes Has Not Named the Plants at Risk
Speculation about individual factories should be treated cautiously because Mercedes has not identified either of the potentially threatened facilities. Its major German passenger-car assembly sites include Sindelfingen, Rastatt and Bremen. Sindelfingen is closely associated with high-end vehicles, Bremen is an important production centre for core models, and Rastatt specializes heavily in compact vehicles. All three have received significant product assignments as Mercedes updates its lineup.
The powertrain side is broader. Mercedes operates German facilities connected with engines, batteries, electric drive units and other components in places including Untertürkheim, Affalterbach, Berlin, Hamburg, Kamenz, Kölleda and Arnstadt. That means the closure warning cannot responsibly be translated into a prediction that any particular factory is doomed. In fact, Mercedes has recently invested in several of those operations. What management has effectively done is put the German manufacturing network itself into the cost discussion, raising the stakes for negotiations without yet revealing how any future restructuring would be allocated.
Working Hours Have Become a Central Battleground
At the centre of the dispute is a deceptively simple question: how many hours should German Mercedes employees work for their existing salaries? Many workers covered by Germany’s metal-industry collective agreements have a standard 35-hour week. Mercedes management has been discussing an increase to 38 hours without a corresponding wage increase, following earlier calls inside German industry for employees to work longer while keeping total pay unchanged.
For Mercedes, the logic is straightforward. More hours for the same salary would reduce labour cost per hour and increase available production capacity without immediately raising payroll. Workers see the calculation differently. IG Metall has made defending the 35-hour week a major issue, while employee representatives argue that unpaid additional working time effectively shifts the cost of Mercedes’ difficulties onto the workforce. The disagreement therefore goes beyond three additional hours. It has become a dispute over who should absorb the financial burden of making German automotive manufacturing more competitive.
Germany’s Labour-Cost Gap Is Difficult to Ignore
Mercedes’ argument is strengthened by a substantial difference in labour costs between Germany and lower-cost European manufacturing locations. Germany’s Federal Statistical Office calculated that manufacturing labour costs averaged €49.50 per hour in 2025. Across the broader German economy, employers paid approximately €45 per hour, around 29% above the European Union average. Hungary, meanwhile, was among the EU countries with the lowest overall labour costs, at roughly €15.20 per hour.
Those numbers are not Mercedes-specific wages, and they should not be interpreted as a direct calculation of what every vehicle costs to assemble. They nevertheless illustrate the structural problem confronting German manufacturers. Modern vehicles can increasingly be produced using standardized platforms and flexible assembly systems in multiple countries. Once factories in lower-cost markets achieve comparable quality and automation, the traditional advantages of German manufacturing become harder to justify purely on economics. Mercedes has acknowledged this directly, describing German production costs—particularly labour costs—as uncompetitive by international standards.
Hungary Shows Mercedes Has a Lower-Cost Alternative
The expansion of Mercedes’ Kecskemét plant in Hungary makes the German debate more concrete. Mercedes invested around €1 billion in the facility, more than doubling its footprint and expanding its ability to manufacture combustion-engine, plug-in hybrid and fully electric vehicles. The factory is already producing the new electric C-Class, and Mercedes expects Kecskemét eventually to provide capacity for as many as 400,000 vehicles.
The company has previously said factor costs at Kecskemét are roughly 70% lower than in Germany. That does not mean Mercedes intends to abandon its home market. German capacity is still expected to total around 900,000 vehicles, and plants there retain important engineering, launch and manufacturing responsibilities. But Kecskemét gives management a credible alternative when assigning future models. Mercedes has also designed its production system so some vehicles can move between factories depending on demand. That flexibility strengthens the company’s negotiating position whenever the cost difference between two plants becomes difficult to justify.
Mercedes’ Car Business Is Under Real Financial Pressure
The factory warning is occurring during a difficult period for Mercedes-Benz Cars. In the second quarter of 2026, the division generated adjusted earnings before interest and taxes of €909 million, down from €1.228 billion a year earlier. Its adjusted return on sales fell to 4.0%, compared with 5.1% in the same quarter of 2025. Mercedes attributed the pressure partly to China, model changes, product-launch expenses and a less favourable sales mix.
China is particularly important. Mercedes-Benz Cars sold 417,765 vehicles globally during the quarter, while Chinese sales dropped 30% from the previous year. Europe rose 4% and the United States increased 10%, but those gains only partially compensated for China’s decline. The company also recorded €704 million in impairments connected with Chinese equity-method investments. Mercedes remains financially substantial and continues investing heavily in new models, but profitability in the core car operation leaves considerably less room to tolerate expensive manufacturing than during stronger years.
The Cost-Cutting Programme Extends Far Beyond Factory Wages
Mercedes was already restructuring long before the latest closure warning. Its Next Level Performance programme targets production, material, fixed and investment costs across the company. Mercedes aims to reduce production costs per vehicle by roughly 10% from 2027 onward compared with 2024. It is also targeting a 10% reduction in fixed costs between 2024 and 2027 and material-cost savings of approximately 8% by 2027.
The changes involve much more than hourly wages. Mercedes is reducing management positions, outsourcing selected non-core activities, using lower-cost sourcing, increasing automation and artificial intelligence, simplifying components and optimizing logistics. In the second quarter of 2026 alone, general administrative expenses were down 14%, research and development spending declined 12% and Mercedes-Benz Cars’ cost of sales fell 7%. The company has therefore already extracted substantial savings elsewhere. Management’s tougher position on German labour indicates that it increasingly views domestic manufacturing costs as one of the remaining structural problems that must be addressed.
Workers Are Showing They Will Fight the Plan
The timing of Schiebe’s comments could hardly have been more sensitive. The Sindelfingen employee meeting took place as German automotive workers participated in nationwide demonstrations organized by IG Metall against job cuts, plant reductions and deteriorating working conditions. Around 20,000 Mercedes employees participated at Sindelfingen according to Mercedes and local reporting, while IG Metall reported even broader participation across Germany’s automotive sector.
Mercedes’ general works council responded sharply to the closure warning, arguing that threatening factories is not an acceptable way to shape the company’s future. Employee representatives have repeatedly acknowledged the difficult market environment, but they reject the idea that workers should carry a disproportionate share of the adjustment. Their argument is that Mercedes also needs better products, investment, technological competitiveness and a stronger long-term industrial strategy. With management pushing for reduced labour costs and the union defending working conditions, the disagreement is becoming a test of Germany’s long-standing model of cooperation between industrial companies and organized labour.
Mercedes Is Part of a Much Bigger German Auto Crisis
The anxiety surrounding Mercedes becomes easier to understand when viewed across Germany’s automotive sector. Federal statistics show that the industry employed about 691,500 people at the end of the first half of 2026, down 42,300—or 5.8%—from a year earlier. That was the lowest German automotive employment level recorded since 2005 and a sharper decline than in any other large industrial sector covered by the data.
Suppliers and rival manufacturers are facing similar pressure from weak demand, the shift toward electric vehicles, Chinese competition, tariffs and Germany’s comparatively expensive industrial base. Industry association VDA has warned that another 125,000 German automotive jobs could disappear by 2035 under its current assumptions, although that is a projection rather than a predetermined outcome. Mercedes’ threat therefore carries significance beyond its own factories. If a premium manufacturer with deep German roots concludes that domestic plants cannot compete, the debate over Germany’s industrial model becomes much harder to dismiss as a temporary downturn.
A Closure Is Possible, but the Outcome Is Far From Decided
There is an important counterpoint to the alarming rhetoric: Mercedes is still investing in German factories. Just days before the closure warning, the company announced the production launch of the new GLA at Rastatt, a plant employing around 7,000 people. Bremen is ramping production of the electric GLC, while Untertürkheim and Kamenz are supplying important electric-drive and battery components. Berlin has also started large-scale production of Mercedes’ new high-performance axial-flux electric motor.
Those investments show why the current dispute should be understood as a negotiation over the future shape and cost of German manufacturing rather than evidence that two factories have already been selected for closure. The next phase will include negotiations with employee representatives as well as Germany’s broader metal and electrical industry bargaining round, scheduled to begin in October. Mercedes still says it wants to preserve its German sites. Whether that remains economically possible will depend on the compromise reached between productivity, labour conditions, future product allocations and the company’s rapidly changing global factory network.
