Mercedes halts German investments and warns of factory closures as Germany's car sector struggles

The anchor opened by recalling that German-made cars were long seen as the standard for engineering excellence, and that brands like Mercedes stood for luxury around the world. "But now they're a symbol of something else: Germany's troubled auto sector," the anchor said. The car industry, once the engine of Germany's economy, is in 2026 stuttering, according to the segment.

The anchor said Mercedes, BMW and Volkswagen have all cut their outlook for this year. "They all cite high costs and competition from Chinese car makers," the anchor said. Mercedes management now says it will halt all investments in Germany and warned that it could be shutting down factories.

This warning was made in an interview posted on the company's internal website.

In the internal interview, board member Britta Seeger said Mercedes is "being forced to examine in concrete and detailed terms which sites in Germany we can afford to maintain." She added: "We want to avoid plant closures at all costs. Unfortunately, we must now concretely pursue this option."

The anchor introduced Ferdinand Dudenhöffer, one of Germany's best-known auto industry analysts, whom German media often call the car pope. He is also director of the Center Automotive Research. Asked about a statement he had made, that the German car industry is in its biggest crisis since its inception, Dudenhöffer described a set of problems that have grown over two or three years and are getting stronger.

Dudenhöffer named three problems. First, Germany has poor cost competitiveness in producing cars. Second, electric vehicles come from China and also from Tesla. Third, production technology: German car makers are used to making many different cars, while Tesla chose one or two models and uses methods like giga casting, which help it reduce costs dramatically.

He summarized these as the three problems the German car industry is facing.

The anchor said Mercedes is threatening to close factories in Germany amid many fights between Mercedes and the unions, particularly IG Metall, Germany's biggest and most powerful union, which is demanding higher wages and announcing strikes. The anchor asked whether the threats were just a tactic to get unions to work more for less pay.

Dudenhöffer said it is not just Mercedes. At VW, the company wants to reduce manpower by around 100,000 people in Germany, and it has plans to close four plants if it does not come back with better cost positions. He said the unions have a privilege, a 35-hour working week, which is very expensive. The industry proposes moving to 40 hours while paying the same wages, but the unions say that is very important to them. With no solution in sight, he said car makers will quit Germany and close plants if there is no agreement, and that he does not think the unions believe this.

Asked about the much-quoted figure that labour costs in Eastern Europe are about a fifth of those in Germany, Dudenhöffer said the major problem is that Germany itself faces a big deindustrialization, so the existence of the German car industry is being questioned. He acknowledged that competing in other countries is not easy but said solutions are possible.

He pointed to the cost structure: energy costs, many administration costs, and a poor logistics system with streets, bridges and trains that are very unreliable. Without new thinking and better cost positions, he said, Germany will lose its automotive industry.

The anchor noted that the automotive industry has long been an engine of the German economy and pointed out that Mercedes, BMW and other brands already make cars in other countries. The anchor asked how much their customers care whether cars are made in Germany or in Mexico.

Dudenhöffer said that 50 years ago people thought of a German car as a German quality, manufactured in Germany. Today, he said, a Porsche bought may not be produced in Germany, and a BMW or Mercedes SUV may be produced in the United States and shipped to Germany. "The customer doesn't care about the country. The customer looks at the quality and looks at the brand. That is what the customer is paying for, not for Germany."

Dudenhöffer said China is the most important car market in the world. He said it sells about 19 to 20 million cars this year, compared with 24 million last year, which he described as a big recession in the automotive industry. As a result, Chinese makers export more cars to Europe and other markets. German makers are also losing market share in China very strongly, and he said they currently lack a strategy.

He explained that Chinese makers and Tesla price their cars lower than German cars. German cars, he said, follow a production philosophy that produces many variants, drivetrains and options so each customer can individualize a car. Standard cars from Tesla, Xiaomi and others are priced 30 to 50 percent lower for customers.

Dudenhöffer said Volkswagen had a strategy called China for China: all electric vehicles coming to the Chinese market in the coming years would be developed exclusively in China in a new development center and produced exclusively there, to reduce costs and compete with Chinese makers and Tesla. He said China has the most knowledge and economies of scale in batteries, and the most knowledge about the car of the future, including automated driving features and entertainment.

He contrasted the engineering traditions: German engineers are more mechanical, while Chinese engineers are more IT-driven. One strategy, he said, is to collaborate with the Chinese; VW is doing so with its partner, and Stellantis with Leapmotor. He argued that combining Chinese know-how with European strengths could be a solution, but said politicians do not want to get close to China, which is the main obstacle to returning to the most important market in the world.

Asked whether the German car industry misread the future of electric vehicles by investing too late and too little, Dudenhöffer rejected that framing. He said the Germans had been very early in the market, and that the problem is they are late with the product and have missed the production technology for the electric vehicle.

He pointed to Elon Musk's use of giga casting with big machines, which Chinese makers such as Dongfeng, Nio and Xiaomi also use, as well as Tesla. Such methods create a more standardized car and reduce cost positions, which helps competitiveness. He said German engineers believed they were the greatest in the world, and laughed at Musk and giga casting, and that Germany has now missed exactly that train. The anchor closed by asking viewers whether this is the end of German-made cars or the beginning of the end.