Mercedes presses German plants to cut costs as Kecskemét becomes its largest European factory

Longer hours or fewer jobs in Germany

Mercedes-Benz production chief Michael Schiebe told Handelsblatt that the company’s German plants must reduce labour costs to remain competitive. Management’s preferred approach is to increase working hours without raising monthly pay by the same proportion.

Collective agreements in the German metal and electrical industry provide for a 35-hour working week at many plants, including Mercedes-Benz sites. Mercedes-Benz supervisory board chairman Martin Brudermüller has reopened the debate over a return to a 40-hour week. Schiebe supports longer hours for the same monthly salary and also wants to review additional payments covered by collective agreements.

The company has already taken one step in that direction. Mercedes has postponed a collectively agreed special payment due in July 2026 for around 90,000 employees. The payment, known as the transformation component, is worth 18.4 per cent of one month’s pay and is now due to be made in 2027.

Moving from a 35-hour to a 40-hour week would mean 14.3 per cent more working time without an equivalent increase in pay. For the company, that would reduce labour cost per hour. For employees, it would amount to a lower effective hourly rate.

IG Metall has strongly opposed the proposals. The union said more than 33,000 employees took part in protests at Mercedes-Benz plants and other sites across Germany in early July.

Schiebe said failure to reach an agreement could prompt Mercedes to move more jobs abroad. He described plant closures as an extreme scenario that the company wants to avoid.

The interview did not announce the closure of any German plant or provide a new figure for factory job cuts. For now, the possibility of relocation is a negotiating threat rather than a confirmed closure programme.

Location-related production costs are far lower in Hungary

Management’s favoured comparison is the Kecskemét plant, about 90 km south-east of Budapest. Mercedes-Benz estimates that location-related production-factor costs there are roughly 70 per cent lower than in Germany.

That does not mean a complete car built in Hungary costs 70 per cent less to manufacture. The figure refers to location-dependent production inputs rather than the total cost of a finished vehicle. Schiebe also highlighted longer working hours in Hungary and lower sickness absence than at German plants.

Kecskemét’s maximum annual production capacity is rising from 200,000 to as many as 400,000 vehicles. That makes it Mercedes-Benz’s largest European plant by installed capacity and, according to the company, its second-largest production site worldwide.

At the same time, Mercedes is reducing the combined capacity of its German plants to around 900,000 vehicles a year, roughly 100,000 fewer than before. Global production capacity is expected to fall from about 2.5 million vehicles in 2024 to around 2.2 million by 2028. These figures describe maximum production capacity, not actual output or sales. Mercedes-Benz confirmed the targets when it published its 2025 financial results.

This is more than a factory upgrade. It is a significant redrawing of Mercedes-Benz’s European production map.

The electric C-Class gives Kecskemét a more important role

Mercedes has invested around €1 billion in expanding Kecskemét. According to the company, the site has grown from 200 to 440 hectares. The project added two new body and assembly halls, a second press shop, a new paint shop and a traction-battery assembly facility.

The plant employs more than 5,000 people. Kecskemét has built electric cars before, but the new electric C-Class is its first EV in one of Mercedes-Benz’s core model segments.

The existing assembly line can build both combustion-engined and electric cars, while the new hall is dedicated to EVs. This gives Mercedes greater flexibility to adjust output as demand changes, particularly while electric-car sales are growing at very different rates across European markets.

Kecskemét is also expected to build the electric GLC alongside Bremen, with production allocated flexibly according to demand. Under current plans, the smaller G-Class will be produced in Hungary. That would give the plant two further product pillars: a higher-volume electric SUV and a compact G-Class with strong brand appeal.

A digital factory cuts costs before production begins

Lower labour costs are not Kecskemét’s only advantage. Mercedes uses its MO360 digital production system at the plant and created a full digital twin of the new assembly hall using NVIDIA Omniverse. Engineers were able to simulate production stages, test equipment virtually and remove bottlenecks before the physical line started operating.

The plant’s solar installations have a combined capacity of 42.3 MWp and cover around a quarter of its annual energy demand. The new paint shop uses about 20 per cent less energy than the existing facility and, according to Mercedes, generates around 80 per cent less CO₂.

Mercedes is combining lower Central European production costs, modern automation and access to the EU single market at one site. Its German plants retain deep engineering expertise, experienced workforces and dense supplier networks, but they must increasingly show that their higher costs deliver a measurable advantage when future models are allocated.

The three-pointed star is not leaving Germany, but it is looking east with growing interest. Kecskemét’s expansion shows that a famous plant name and a long history are no longer enough to secure future models. Cost per vehicle, production flexibility and speed of response increasingly determine where a car is built.