The previous severance programme had only expired in the spring. Now Mercedes-Benz is bringing the instrument back. From December, employees in administration, development and other non-production functions are once again expected to receive voluntary exit offers. For the first time, senior managers will also be included. The timing shows how deep the pressure has become – because the real problem lies thousands of kilometres away from Stuttgart.
China wipes out gains elsewhere
In a message to employees, Mercedes management described the situation in unusually clear terms. Business is performing well in some regions, but those gains are being “more than offset” by declines in China.
The numbers support that assessment.
Mercedes-Benz Cars sold 417,765 passenger vehicles worldwide in the second quarter of 2026, almost eight percent fewer than a year earlier. Sales increased four percent in Europe and ten percent in the United States.
Without China, Mercedes’ global sales would have risen by two percent.
But deliveries in China fell by 30 percent.
Mercedes cites three reasons: intense competition, subdued demand and model transitions within its portfolio. The first of those, however, extends far beyond one weak quarter.
For German premium carmakers, China is no longer merely a large sales market. Mercedes, BMW and Porsche increasingly face domestic manufacturers that have caught up rapidly, particularly in electric vehicles, software and digital features – often with significantly lower cost structures.
Severance offers return in December
Mercedes therefore plans to reactivate its voluntary severance programme in Germany.
It will apply to so-called indirect functions, including areas such as administration, development and production planning.
Alongside employees covered by collective agreements, managers and senior executives will for the first time also receive individual offers.
The programme will continue to operate under the principle of double voluntariness: Mercedes cannot force an employee to leave through the scheme, while an employee cannot demand a severance package against the company’s wishes.
Mercedes has not disclosed how many additional jobs it intends to eliminate.
The previous programme ran from 2025 until spring 2026. According to media reports, around 5,500 employees left the company through that scheme.
Previous job cuts already cost 1.1 billion euros
The extent to which Mercedes is prepared to spend money in order to reduce its long-term cost base is now visible in its cash flow.
In the first half of 2026 alone, the company says around 1.1 billion euros flowed out for severance payments under its “Next Level Performance” efficiency programme.
Launching another round only months later makes it difficult to interpret the move as a short-term reaction to a few weak sales months.
Mercedes is fundamentally restructuring its cost base.
By 2027, fixed costs are intended to fall ten percent compared with 2024. Production costs per vehicle are also targeted to decline by ten percent, while material costs are initially expected to decrease by around eight percent.
In China, the targets are even more ambitious. By 2027, Mercedes aims to reduce local material costs by ten percent, variable production costs by 20 percent and fixed costs by another 20 percent.
China is hitting Mercedes where it hurts
The Chinese market matters particularly to Mercedes because it has historically delivered not only high volumes, but also sales of highly profitable models.
The company says it has around seven million Mercedes customers in China. Its strategy for years focused deliberately on the upper end of the market, where premium pricing could generate strong margins.
That strategy is now under pressure.
In the second quarter, adjusted operating profit at the passenger-car division fell from 1.23 billion euros a year earlier to 909 million euros. The adjusted return on sales dropped from 5.1 to four percent.
Mercedes explicitly identifies stronger competitive pressure – particularly in China – as one of the causes.
The company also recorded a 704 million euro impairment on investments in China. The charge did not result in an equivalent immediate cash outflow, but it illustrates that the economic assumptions underlying those investments have changed.
This is not an emergency rescue
Despite the aggressive cost-cutting, Mercedes is not facing a liquidity crisis.
At the end of the first half, the industrial business had net liquidity of 30.4 billion euros. In the first six months of the year alone, the group spent five billion euros on dividends and share buybacks.
Another share repurchase programme has been running since September, allowing Mercedes to buy back up to one billion euros of its own shares by April 2027.
The workforce reductions are therefore not designed to preserve short-term solvency.
They are intended to protect profitability in what the company increasingly expects to be a permanently tougher market environment.
Group net profit had already fallen from 10.4 billion euros in 2024 to 5.3 billion euros in 2025. Mercedes is responding with a combination of new models, reduced investment, lower material and manufacturing costs and a leaner organisation.
Germany itself is coming under greater cost pressure
The workforce restructuring is only one part of the debate.
According to Wirtschaftswoche, Mercedes wants to cut labour costs in Germany by around 800 million euros. Measures reportedly under discussion include longer working hours without corresponding increases in pay and changes to special payments. Mercedes itself has not commented in detail on the ongoing negotiations.
Production chief Michael Schiebe has also made clear that German plants need to improve productivity.
The development fits a broader pattern across the German automotive industry. Volkswagen, BMW, Porsche and numerous suppliers are reducing costs and employment or reassessing production sites.
China is applying pressure in two directions at once: German manufacturers are selling fewer vehicles there, while Chinese competitors are simultaneously expanding their presence in Europe.
Mercedes is answering China with more China
Yet the company is not planning a retreat from the market.
Quite the opposite.
Mercedes wants to localise more development and production. Under its “In China for China” approach, the group is expanding partnerships with Chinese technology companies, including Momenta in automated driving and ByteDance in digital services.
That is also changing the division of labour.
For decades, German carmakers developed most technologies in Germany and then introduced them across their global markets. Increasingly, technology for Chinese customers is now being developed locally – often together with Chinese partners.
That marks a strategic shift.
China is no longer simply a sales market. It is simultaneously a development hub, a technology centre and home to Mercedes’ most aggressive competitors.
The bigger challenge begins after the cuts
Mercedes therefore finds itself in a difficult transition.
The company has enough financial strength to fund new models and finance its transformation. Between 2025 and 2027, more than 40 new or updated vehicles are expected to reach the market.
At the same time, Mercedes must reduce costs substantially while one of its most important markets undergoes a structural change.
The renewed severance programme is therefore not primarily a story about several thousand potentially fewer jobs.
It shows that Mercedes is planning for a different reality.
The question is no longer simply when sales in China will recover.
It is what size and cost structure a German premium carmaker needs if China remains permanently less profitable than it was during the past two decades.
Stefanie S. Klief
