KEY POINTS

• Mercedes-Benz will restart its voluntary redundancy programme in Germany in December as it seeks to reduce fixed costs.
• Chief Executive Ola Källenius said the company was discussing further cost-cutting measures with unions but did not disclose a target for job losses.
• The German carmaker warned of weaker full-year profits amid intense competition and declining demand in China.
• Third-quarter net profit rose nearly 30 per cent to €1.52 billion, even as sales fell 4.5 per cent to €30.7 billion.
• Volkswagen and BMW have also announced major workforce reduction plans as German carmakers adjust to difficult market conditions.

MAIN STORY

Mercedes-Benz will restart its voluntary redundancy programme in Germany in December as the luxury carmaker seeks to cut costs following a warning over its full-year profits.

Chief Executive Ola Källenius announced the decision on Wednesday during an earnings call to present the company’s third-quarter results. He said discussions with unions were ongoing over additional measures to reduce costs, but the company had not disclosed how many employees could leave under the programme.

Källenius said Germany accounted for roughly 15 per cent of Mercedes-Benz sales but housed about two-thirds of its employees and business structures, making the country a major focus of its cost-reduction efforts.

“To reduce our fixed costs further, we have decided to restart the severance programme in Germany in December,” he said.

The company is under pressure from intense competition and weakening demand in China, the world’s largest car market. Mercedes-Benz on Tuesday became the third major German carmaker, after Volkswagen and BMW, to warn of weaker full-year profits, citing difficulties in China.

The pressure has prompted manufacturers to reconsider their workforce and operating structures. BMW aims to cut 8,000 jobs by the end of 2027 through its own voluntary redundancy programme, while Volkswagen Group plans to reduce its global workforce by 120,000 by the end of the decade across brands including Porsche and Audi.

Källenius said Mercedes-Benz would continue adjusting its operations to reflect its revenue position, although he declined to provide further details while discussions with unions continued.

He also highlighted differences in labour costs between Germany and other countries, saying China, Hungary, Romania and the United States had lower labour costs. He added that eastern Europe remained an option for industrial companies seeking to expand.

Despite the challenges, Mercedes-Benz reported higher net profit for the third quarter. Net profit rose almost 30 per cent to €1.52 billion, equivalent to $1.69 billion, while overall sales declined by 4.5 per cent to €30.7 billion, largely because of a sharp fall in China.

Källenius said the company could not afford to withdraw from the Chinese market despite the price competition involving more than 100 carmakers.

“If you’re a global car company like Mercedes, there’s not a play where you put China aside,” he said.

THE ISSUES

Mercedes-Benz’s decision highlights the pressure facing manufacturers that maintain large operations in countries where labour costs are relatively high. Germany accounts for a smaller share of the company’s sales than its share of employees and business structures, creating pressure to align operating costs with the revenue generated in the market.

Voluntary redundancy can reduce the workforce without immediately resorting to compulsory dismissals, but it still carries costs, including severance payments. The longer-term benefit depends on whether savings from a smaller workforce outweigh the cost of the programme and whether the company can maintain production, innovation and service quality.

The decline in sales despite higher quarterly profit also shows why a single financial result does not tell the full story. Profit can rise even as revenue falls, but continued weakness in a major market may make it harder to sustain earnings if demand does not recover or price competition intensifies.

China presents a particularly difficult challenge because Mercedes-Benz sees the market as too important to abandon, even as competition puts pressure on sales and pricing. The company must therefore balance defending its position in China with reducing costs elsewhere.

The developments at Mercedes-Benz, BMW and Volkswagen also point to a broader adjustment across Germany’s automotive industry. Workforce reductions and changes in operating locations could help manufacturers lower expenses, but they also raise questions about employment and the future role of Germany as a major centre of vehicle production.

WHAT’S BEING SAID

“Germany accounts for roughly 15 percent of our sales, but two-thirds of our employees and structures are based here,” – Ola Källenius, Chief Executive Officer, Mercedes-Benz.

“To reduce our fixed costs further, we have decided to restart the severance programme in Germany in December,” – Ola Källenius, Chief Executive Officer, Mercedes-Benz.

“We will continue with determination to adjust the structures of the company to fit the revenue position of the company,” – Ola Källenius, Chief Executive Officer, Mercedes-Benz.

“If you’re a global car company like Mercedes, there’s not a play where you put China aside,” – Ola Källenius, Chief Executive Officer, Mercedes-Benz.

WHAT’S NEXT

Mercedes-Benz is expected to continue discussions with unions over further cost-cutting measures ahead of the December restart of its voluntary redundancy programme. The company has not disclosed a target for employee departures or provided details of the additional measures under consideration.

Investors will also monitor the company’s full-year performance and its ability to manage costs as demand in China weakens. The extent to which workforce adjustments improve profitability will depend on the savings achieved and the company’s ability to sustain sales in its major markets.

BOTTOM LINE

Mercedes-Benz is preparing another round of voluntary redundancies in Germany as falling sales in China and competition put pressure on its business. Although third-quarter profit increased, the company is seeking a leaner cost structure to protect earnings while remaining in a market it considers essential to its global operations.

Source: Supplied report on Mercedes-Benz’s third-quarter results and cost-cutting plans.