Mercedes-Benz is reportedly putting increasing pressure on its German production operations as the automaker looks for ways to reduce costs and improve factory efficiency. According to a report from German business weekly WirtschaftsWoche, company management has allegedly warned employee representatives that a German factory could eventually become unnecessary if labor costs cannot be significantly reduced.

The reported warning comes amid increasingly difficult negotiations between Mercedes-Benz management and Germany’s powerful works councils. At the center of the dispute are labor costs, working hours, employee benefits and the competitiveness of Mercedes’ German manufacturing operations.

The stakes are particularly high because Mercedes-Benz has substantial production capacity elsewhere in Europe, including its factory in Kecskemét, Hungary, where production costs are considerably lower than in Germany.

Mercedes-Benz Reportedly Threatens New Eastern European Factory

According to WirtschaftsWoche, citing several sources within Mercedes-Benz, a member of the company’s management board allegedly told workers’ representatives that the company could build a new factory in Eastern Europe if German labor costs are not reduced substantially.

Under that scenario, one of Mercedes-Benz’s existing German production facilities could eventually become unnecessary.

There has been no official decision to close a German factory, and it remains unclear which location could potentially be affected. Neither Mercedes-Benz management nor its supervisory board has reportedly made a final decision.

Mercedes-Benz has also declined to comment on the specific allegations, saying that it generally does not comment on ongoing negotiations with employee representatives.

Nevertheless, the reported warning highlights a broader issue facing Germany’s automotive industry: whether manufacturing vehicles in the country remains economically competitive compared with lower-cost production locations elsewhere in Europe.

German Mercedes Workers Cost More Than Three Times as Much Per Hour

One of the most striking elements of the dispute is the difference in hourly labor costs between Mercedes-Benz’s Hungarian and German operations.

Mercedes-Benz’s Kecskemét plant reportedly has an hourly wage of around €15.60, compared with approximately €49.50 for workers in Germany, according to the figures cited in the source material.

That does not mean the total cost of manufacturing a vehicle is simply 3.2 times higher in Germany. Factory economics also depend on productivity, automation, energy prices, logistics, infrastructure, taxes, supply chains and the complexity of the vehicles being produced.

Mercedes-Benz itself has reportedly said that so-called factory costs in Hungary are around 70 percent lower than in Germany.

Those factory costs include more than employee wages. They can encompass labor, energy, infrastructure, logistics and maintenance, making the difference particularly important when an automaker is deciding where to allocate future production investments.

Kecskemét Could Become Increasingly Important to Mercedes-Benz

Mercedes-Benz already operates one of its most important European production facilities in Kecskemét, Hungary.

The plant has recently undergone a major expansion that reportedly doubled its potential production capacity to approximately 400,000 vehicles annually. More than 5,000 employees work at the facility.

The Kecskemét factory currently produces models including the Mercedes-Benz GLB and the electric C-Class. A smaller version of the G-Class is also expected to join the production lineup.

The expansion gives Mercedes-Benz an important alternative to its higher-cost German manufacturing sites. If the company decides to increase production in lower-cost European locations, Kecskemét would be an obvious candidate to play a larger role.

That does not necessarily mean Mercedes-Benz intends to abandon Germany. The company’s German factories remain strategically important for vehicle production, engineering, technology and the broader Mercedes-Benz industrial network.

However, the cost difference makes future investment decisions increasingly difficult.

Mercedes-Benz Wants Employees to Work Five More Hours

The reported conflict is not limited to wages.

One of management’s most controversial proposals reportedly involves increasing working hours by five hours per week without increasing monthly salaries.

In practical terms, employees would work longer for the same basic pay. From the company’s perspective, the proposal would reduce the effective labor cost per hour while increasing available production capacity.

For employees and works councils, however, the proposal represents a significant change to working conditions.

The discussions reportedly also include a review of additional compensation and benefits.

Christmas bonuses, severance-related payments and other special benefits could potentially be reduced or changed. One special payment has already reportedly been postponed, while employee profit-sharing payments could also be reduced or temporarily suspended.

Works councils have rejected the proposals, with sources reportedly describing the company’s approach as excessive pressure and even “blackmail.”

Mercedes-Benz Says German Factories Have Too Much Capacity

The cost dispute comes as Mercedes-Benz evaluates the future capacity of its German manufacturing network.

In June, company management reportedly sent a letter to employees warning that the production capacity of German factories was “significantly above demand.”

Management also reportedly pointed to high sickness absence rates and fewer annual working days compared with some international locations.

According to the company’s assessment, Mercedes-Benz employs more people per vehicle produced in Germany than other manufacturers.

The conclusion is straightforward from a business perspective: German plants need to become more productive and less expensive if they are to remain competitive for future investments.

Management has therefore reportedly argued that labor costs need to be reduced throughout the organization, including development, sales, administration and manufacturing.

The most direct message is that employees should work more for the same salary.

Why Germany Is Becoming More Difficult for Automakers

The Mercedes-Benz dispute is part of a much larger problem affecting Germany’s automotive industry.

For decades, Germany’s car industry benefited from a combination of highly skilled workers, strong engineering capabilities, premium vehicle production and a sophisticated industrial supply chain.

But the economics of global vehicle manufacturing have changed dramatically.

Automakers are now dealing with higher energy costs, intense competition from Chinese manufacturers, weaker demand in some markets and enormous investment requirements for electric vehicles, batteries, software and new vehicle platforms.

At the same time, manufacturers are under pressure to keep prices competitive.

That creates a difficult equation for German automakers. Producing vehicles in Germany offers major advantages, including access to engineering expertise, established suppliers and a highly skilled workforce. But those advantages come with significantly higher labor and operating costs.

Lower-cost production locations in Central and Eastern Europe can therefore become increasingly attractive when manufacturers plan new capacity.

Volkswagen Has Already Shown How Serious the Problem Is

Mercedes-Benz’s reported internal pressure stands in contrast to the situation at Volkswagen, where factory closures, job reductions and extensive cost-cutting measures have already become a major part of the company’s restructuring discussions.

Mercedes-Benz has generally been viewed as being in a stronger financial and operational position than Volkswagen.

That makes the reported developments particularly significant.

If even a premium manufacturer such as Mercedes-Benz is considering whether its German factories are cost-competitive enough for future investment, the pressure on Germany’s traditional automotive manufacturing model is becoming increasingly difficult to ignore.

The question is no longer simply how many cars German factories can build.

It is how cheaply and flexibly they can build them compared with plants elsewhere in Europe and around the world.

Will Mercedes-Benz Move More Production to Hungary?

At this stage, there is no confirmed decision to close a Mercedes-Benz factory in Germany or build another plant in Eastern Europe.

However, the company’s existing investment in Hungary demonstrates that Mercedes-Benz already has a substantial lower-cost manufacturing alternative within its European production network.

The Kecskemét plant’s expanded capacity could give the automaker considerable flexibility when deciding where future models should be manufactured.

If German labor costs remain significantly higher and domestic factories continue to operate below their potential capacity, the economic argument for directing additional production toward Hungary or other lower-cost locations could become stronger.

For Mercedes-Benz employees in Germany, that creates an uncomfortable situation.

The future of their jobs may increasingly depend not only on the success of individual vehicle models, but also on whether German factories can demonstrate that their higher costs are justified by greater productivity, quality, flexibility and strategic value.

The Future of German Car Manufacturing Is at Stake

The Mercedes-Benz dispute illustrates a fundamental challenge facing the German automotive industry.

High wages, strong employee protections and extensive worker participation have historically been central components of Germany’s industrial model. They helped create a highly skilled manufacturing workforce and supported the country’s position as one of the world’s most important automotive production centers.

But global competition is forcing manufacturers to reconsider the economics of that model.

Chinese automakers are expanding rapidly, electric vehicles require enormous investments and European manufacturers are searching for ways to lower costs without sacrificing quality.

Mercedes-Benz now appears to be facing the same fundamental question as many of its German competitors:

How much more can it afford to pay to build a vehicle in Germany?

If the answer becomes “too much,” future investment could increasingly move toward lower-cost European production sites.

For now, no German Mercedes-Benz factory has been officially selected for closure. But the reported threat is a clear warning that Germany’s position at the heart of European car manufacturing can no longer be taken for granted.

The next round of negotiations between Mercedes-Benz management and its works councils could therefore have implications far beyond working hours and employee benefits. It could help determine where the next generation of Mercedes-Benz vehicles is built—and whether Germany remains at the center of the company’s manufacturing strategy.

Source: WirtschaftsWoche