Germany is gonna be slapped hard because it's car manufacturers bet heavily on "combustion engines" and being THE "luxury brand" in China in 2016 when everyone could see what direction the hockey puck was going.
EVs were the future then and especially now. German car manufactures placed poor bets.
This is on the heels of VW also pulling out of Germany (as of just two days ago). VW is scrapping their biggest plant in Dresden and also shifting manufacturing to Eastern Europe and out of Germany for four other plants.
German automakers can not longer remain competitive, for a few reasons.
Part of this is due to declining sales in China (driven by competitive domestic EVs there), and a large part is due to the political and regulatory envornoment in the EU/Germany: these automakers are being forced to electrify as ICE vehicles are banned as of 2035, cost of labor in Germany in 4-5x what it is in eastern europe, electricity and gas prices (for manufacturing) are through the roof, and VW itself is 20% controlled by the state and being hamstrung by that a bit as well.
MB has by far the worst leadership out of all German car brands
The new Porsche CEO definitely knows what he is doing, VW's core brand is also evolving well with the ID Polo, and even BMW has gotten something right with the Alpina acquisition and concept
Källenius on the other hand is responsible for the gigantic commercial flop that is the EQ series. He directed that before becoming CEO and then had to shut it down as CEO because people didn't see the cars as prestigious. And they are right. They look and feel like new Chinese brands. And don't even get me started on the new AMG GT. That is both a hideous and soulless car.
As someone living in Germany, I can totally see why. Electricity price is through the roof since the country phased out nuclear. It's one of the highest in the world in fact.
Also, the culture here is extremely risk averse. Add the layers of bureaucracy and the inability to move with time, I expect more and more large companies will succumb to a similar fate.
Unsurprisingly, export manufacturing based economies are all facing the same decline.
As they lost their special know hows, the advantages are now in the hands of who invests more, diversifies more, has less bureaucracy and is more risk prone.
Their whole strategy is selling luxury cars in China, without an afterthought on what might happen if that market changes in any way. Now, they don't know what to do. At the same time, they destroyed their image. Instead of being the most reliable car, they transformed themselves in a luxury brand.
Oh, I had forgotten I had an active FT subscription with everything else going on in the world.
> Mercedes-Benz has decided to halt “all further investments” in Germany and warned that plant closures were now an option, marking an escalation of its stand-off with unions in a bid to reduce labour costs.
> The German premium carmaker has called for longer working hours without extra pay to boost productivity but has failed to reach a deal with its works council despite four months of negotiations.
> In an interview with board members published on the company’s intranet on Thursday, its production head Michael Schiebe said “the current cost structures do not allow us to invest in Germany”.
The article is short and sweet, so I’m wary of copying all of it. It goes on to explain:
* A 35-hour work week is the norm in Germany for automakers, and MB is asking their workforce to change to 40.
* Rising competition for cheaper Chinese automakers is placing new economic pressures on MB.
FTA: it looks like their sales figures in China have slumped quite a bit. As a car guy, apocryphally, it seems the major German brands have spent a lot of time and resources realigning their offerings to that market (at the expense of their other markets), and now that Chinese manufacturers are putting out some genuinely great cars for much cheaper, are reaping the costs of that decision.
They had created tooling for cars with longer wheelbases because apparently having a larger back seat area is sought after in China. The design language also apparently was intended to appeal to Chinese buyers (I'm less sure on this, but notably the design language of both BMW and MB changed pretty dramatically in the last 10 years).
I'm guessing cultural adaptations like supposedly Mercedes had to do when reaching the north American market and had to add a cup holder because everyone has the habit of taking a coffee in the morning while driving to work.
Only 6.4% of institutional and strategic investors are based in Germany. 34.5% are retail investors, and 20% of the German population owns any shares (of any company) at all. So most investors of Mercedes don't have any particular reason to invest in Germany.
Due to unions in Germany labor costs are "too high." Mercedes-Benz, known for it's affordability, is worried about it's customer base balking at the cost of it's products.
Or they're just anti-labor, greedy, turds.
If you compete on global markets, you inevitably compete with global wage levels, and somewhat comparable talent in China demands not even 50% of the wage it would get in Germany.
There is a reason that new car production has been shifting towards lower wage countries for decades now (US=>Mexico, Europe Central=>East).
This situation is gonna get better for countries like Germany once Chinese wage levels have somewhat caught up, but that might still take a while, and other big currently industrializing lower-wage countries might take over that role (like Indonesia or India).
China is killing Germany's car production and has been
for a while. It is now just much more obvious, even
quality-wise, which used to be a stronghold foundation
of german engineering. Expanding eastwards and cutting
costs is a losing strategy for Germany - there is a
reason why the AfD is gaining momentum, despite their
addiction to ultra-right thoughts. Meanwhile, incompetent
people such as Merz (old guy, talks big, acts little)
fail hard when they meet reality. Guy is now sinking
Germany quickly and he has no decency to want to step
back and let more competent people at the least try to
fix Germany. Meanwhile France is going closer towards
bankruptcy. To some extent this is similar to the 1930s
era, also aided by Trump cronies and the Putin mafia.
Germany but also the whole EU, needs to completely
reconsider what it really wants; and how it plans to
achieve that. The china dictatorship makes much more
logical decisions - not in all areas, of course, but
they pursue a strategy. Systematically. The EU does
not really do that. They just claim they do but in
reality they do not. Green energy is fine and dandy
but if the prices keep on rising, inflation rises as
well, then something does not work with that promise.
TLDR; they didn’t invent anything new in the past 30 years and now Chinese and others caught up on them. It’s hard to maintain the luxury price if your product doesn’t offer anything different and the performance is mediocre.
It seems they are not going to give in to the demand from unions in Germany. To prove their point, they are announcing the consequences of having a workforce that is overpaid and no longer know what real work feels like. German workers need that wake up call if they don’t want to become a third world country.
No, that analysis is wrong. You try to blame it on the workers.
While it is true that the work cost is higher than in Poland, even
though Poland closed the gap immensely in the last 10 years, the
issue is much more deeply rooted. There is no way Germany can now
compete with China. This happened to the USA too, decades before,
see how Detroit collapsed. China kind of copied the Japanese and South Korean variant while massively upsizing all of that, including integrating key aspects into their work flows. You only need to look at robot factories. You won't find that in Germany much at all. The innovation changed completely.
Mercedes-Benz just tries to shift the blame to lower costs, which
is understandable from their point of view, but does not fix the
core problem. Even building in Poland or Romania, won't fix the
issue with regards to China. That's not the fault of the workers
primarily.
I'm relatively certain Detroit collapsed because their vehicles were junk. The entire reason why 70s era vehicles are so easy to keep running today, is it took just as much work back then to keep them going.
By stopping import of Russian gas, yes, there is no way to compete with China.
Imported natural gas used to cost Germany roughly €12 per megawatt-hour (MWh) at the border
Now wholesale prices have climbed to around €60+ per MWh, roughly FIVE times higher than previous levels.
That's goodbye to Industry in Germany - well except for the War Industry which has state protection and funding and doesn't need to be competitive. And China has become even more cheaper since they pay far less for Russian gas.
I don't know why the very bright guys here on HN have such HARD blinkers on correlation and causation between energy prices and energy-intensive industry. Even Merz himself finally admitted it this year but most HN posters want to put their high-IQ heads into cement rather than admit that stopping Russian gas was one the main causes of the downfall of German industry.
This is true. Firing lazy workers are super difficult here. So the wage doesn't move and people with a cushy job do whatever the hell they want without any consequences.
A quick google shows they make about 45k/year (pre-tax). Even for Germany that is not a lot of money. That is less than the median Germany salary. Mercedes is asking them to work 40h/week without an increase in monthly pay. Who would accept that without a fight? Mercedes does not build cheap cars, I am sure they can afford reasonable pay. Have you worked in car manufacturing? Do you know what "real work" feels like?
Workers shouldnt have to live poorly so you can buy a cheap German car. The reality as the GDP goes up and wealth and wages go up, you can no longer compete in manufacturing compared to poorer countries. This is how capitalism works. Blaming the workers is entirely wrong. Everyone who works should have a good wage. Germany is just experiencing what the US experienced 20-30 years ago when it admitted its best moving a lot of manufacturing overseas. Near everything you own is made in these poorer countries, but that's not a problem, but somehow when it comes to cars, people take offense.
Until we achieve worldwide socialism where it doesnt matter what is made where, this is how its going to be. National borders will dictate economics and what is best done in those countries. The wealthy west simply cannot compete on manufacturing anymore.
yes for sure it's the fault of the lazy overpaid workers not the decisions made by management. and this germany has to wake up narrative is the same that comes from the right wing politicians. so i would call this bs.
Article is pay walled but if the headline is true that's tragic. I wonder if they're going to invest elsewhere or just admit defeat and slowly wind down the business.
I can't help but think this was influenced somewhat by the shutdown of Germany's nuclear reactors thus making energy more expensive and all the knock on effects.
basically, management is in a standoff with the unions about working more than 35 hours without paying for it, they also don't want to pay holiday bonuses.
Citing high production costs, they are looking to the US and want to bring costs in Germany down to the production costs in the US.
Nothing about what cuts the management is willing to take.
> Citing high production costs, they are looking to the US and want to bring costs in Germany down to the production costs in the US.
Which is funny since both are much higher than China. These lagging car industries will only be able to be protected for so long from Chinese EVs like BYD.
MB is complaining that they can't force the union workers to work longer days without extra pay. They are also complaining that Chinese automakers are selling well in Europe and are much cheaper to build. The second complaint is completely valid, I don't see how domestic auto making can survive when you can pick up a BYD for much less.
Mercedes-Benz turned a net profit of $5.3 billion last year. Even if they had had a bad year, they would have assets - tangible and intangible - and potential for turning things around. There's plenty of stakeholders with, well, stakes in the business and incentives to see it do well.
How does one come to wonder if they are going to "slowly wind down the business"?
Yeah, the paywall is questionable - I don't think I'd read them enough to be worth paying the price even though I understand they need to make money...
My bet (edit: reading other comments I'm glad I didn't put money on it... leaving this comment anyway) based on other cases of this is they are fighting a law (or several laws), and are making this threat as a "change the law to favor us or we will leave and this prove you need us more than we need you".
I don't know how it will work out for them, I've seen it go both ways. I've also seen this stop some really stupid laws, and also stop some really good laws. Without knowing details of what they are trying to do I can't comment on which side I support.
> I can't help but think this was influenced somewhat by the shutdown of Germany's nuclear reactors thus making energy more expensive and all the knock on effects.
The shutdown had no effect on energy prices in Germany.
I think that energy prices are just a part of the root cause.
The other parts are:
1. German producers really fucked up with the "electric" revolution and were caught a bit with their pants down by Tesla and especially the Chinese brands.
2. Specific to Mercedes-Benz, I believe the brand failed to attract younger buyers. Personally, I associate Mercedes cars with boomers/older genX folks.
3. Price. In a moment in which affordability is a major issue for the majority of people, the base model of the cheapest car (the A class) starts from 42900 CHF.
Germany is gonna be slapped hard because it's car manufacturers bet heavily on "combustion engines" and being THE "luxury brand" in China in 2016 when everyone could see what direction the hockey puck was going.
EVs were the future then and especially now. German car manufactures placed poor bets.
This is on the heels of VW also pulling out of Germany (as of just two days ago). VW is scrapping their biggest plant in Dresden and also shifting manufacturing to Eastern Europe and out of Germany for four other plants. German automakers can not longer remain competitive, for a few reasons.
Part of this is due to declining sales in China (driven by competitive domestic EVs there), and a large part is due to the political and regulatory envornoment in the EU/Germany: these automakers are being forced to electrify as ICE vehicles are banned as of 2035, cost of labor in Germany in 4-5x what it is in eastern europe, electricity and gas prices (for manufacturing) are through the roof, and VW itself is 20% controlled by the state and being hamstrung by that a bit as well.
MB has by far the worst leadership out of all German car brands
The new Porsche CEO definitely knows what he is doing, VW's core brand is also evolving well with the ID Polo, and even BMW has gotten something right with the Alpina acquisition and concept
Källenius on the other hand is responsible for the gigantic commercial flop that is the EQ series. He directed that before becoming CEO and then had to shut it down as CEO because people didn't see the cars as prestigious. And they are right. They look and feel like new Chinese brands. And don't even get me started on the new AMG GT. That is both a hideous and soulless car.
> gigantic commercial flop that is the EQ series
I once had the chance to do sit in an EQS (450somethingorotherdontreallyknow?).
The car had a sticker price of 156k€ (!!!), yet everything just felt _so_ cheap, was squeaky plastic - nothing in that car did warrant the price.
http://archive.today/fcp4U
As someone living in Germany, I can totally see why. Electricity price is through the roof since the country phased out nuclear. It's one of the highest in the world in fact.
Also, the culture here is extremely risk averse. Add the layers of bureaucracy and the inability to move with time, I expect more and more large companies will succumb to a similar fate.
Sounds exactly like Japan
Or Italy.
Unsurprisingly, export manufacturing based economies are all facing the same decline.
As they lost their special know hows, the advantages are now in the hands of who invests more, diversifies more, has less bureaucracy and is more risk prone.
The article isn’t about energy costs. It’s about union negotiations and competition with cheaper Chinese automakers.
Their whole strategy is selling luxury cars in China, without an afterthought on what might happen if that market changes in any way. Now, they don't know what to do. At the same time, they destroyed their image. Instead of being the most reliable car, they transformed themselves in a luxury brand.
Alternative non-paywall
https://www.dw.com/en/mercedes-benz-germany-investment/a-799...
Very mismanaged brand.
The CEO has been a disaster imho.
Took a brand that was "aspirational professional" and tried to make it ten years younger and sportier.
So it took itself from an empty niche, to the very same one occupied by Audi and BMW.
Wrong demographic with the wrong budget.
Reliability has gone downhill, while interiors look like a tacky vietnamese solarium appealing to gamers.
If you want to understand how clueless management is about cars just look at the SL model.
200k for a car that every person with that budget will skip to get a Porsche 911.
I see 911s everywhere, but SLs? They used to make sense at a different budget decades ago, now they are nonsense.
Cost of sales 1310. Cost of labour 747. Cost of administrative expenses 770.
Labour cost percentage 35.9% Indeed quite high.
https://group.mercedes-benz.com/documents/investors/reports/...
This is news to me. Can anyone provide context? Have MB sales gone down?
Oh, I had forgotten I had an active FT subscription with everything else going on in the world.
> Mercedes-Benz has decided to halt “all further investments” in Germany and warned that plant closures were now an option, marking an escalation of its stand-off with unions in a bid to reduce labour costs.
> The German premium carmaker has called for longer working hours without extra pay to boost productivity but has failed to reach a deal with its works council despite four months of negotiations.
> In an interview with board members published on the company’s intranet on Thursday, its production head Michael Schiebe said “the current cost structures do not allow us to invest in Germany”.
The article is short and sweet, so I’m wary of copying all of it. It goes on to explain:
* A 35-hour work week is the norm in Germany for automakers, and MB is asking their workforce to change to 40.
* Rising competition for cheaper Chinese automakers is placing new economic pressures on MB.
I root for the workers.
I hate that we live in a timeline where we keep asking more and more out of people.
We have one life to live.
Stop exploiting people.
They seem to be asking their workers to work 40 hours a week.
That’s where it begins. They’re competing with Chinese manufacturing, 5 more hours a week isn’t going to solve that problem.
Would a modern-day Henry Ford have kept the standard at 40 hours, or might he have lowered it further due to his progressive nature?
> I hate that we live in a timeline where we keep asking more and more out of people.
This is not the case. We have more leisure time and social safety nets than ever before.
The quotes make it sound like this could also just be a negotiation tactic.
FTA: it looks like their sales figures in China have slumped quite a bit. As a car guy, apocryphally, it seems the major German brands have spent a lot of time and resources realigning their offerings to that market (at the expense of their other markets), and now that Chinese manufacturers are putting out some genuinely great cars for much cheaper, are reaping the costs of that decision.
What kind of “alignment” are you talking about? Cars with zodiac signs?
They had created tooling for cars with longer wheelbases because apparently having a larger back seat area is sought after in China. The design language also apparently was intended to appeal to Chinese buyers (I'm less sure on this, but notably the design language of both BMW and MB changed pretty dramatically in the last 10 years).
I'm guessing cultural adaptations like supposedly Mercedes had to do when reaching the north American market and had to add a cup holder because everyone has the habit of taking a coffee in the morning while driving to work.
Presumably the obnoxious radiator grills, tasteless light arrays and overly massive bodies.
The shareholder distribution is listed here: https://group.mercedes-benz.com/investors/share/shareholder-...
Only 6.4% of institutional and strategic investors are based in Germany. 34.5% are retail investors, and 20% of the German population owns any shares (of any company) at all. So most investors of Mercedes don't have any particular reason to invest in Germany.
Due to unions in Germany labor costs are "too high." Mercedes-Benz, known for it's affordability, is worried about it's customer base balking at the cost of it's products. Or they're just anti-labor, greedy, turds.
Why put the "too high" in quotation marks?
If you compete on global markets, you inevitably compete with global wage levels, and somewhat comparable talent in China demands not even 50% of the wage it would get in Germany.
There is a reason that new car production has been shifting towards lower wage countries for decades now (US=>Mexico, Europe Central=>East).
This situation is gonna get better for countries like Germany once Chinese wage levels have somewhat caught up, but that might still take a while, and other big currently industrializing lower-wage countries might take over that role (like Indonesia or India).
Obviously the smartest course of action here would be to fine MB and levy a new tax on them to ensure future state revenue.
Can be financed by a new subscription on Mercedes drivers that enables turning the steering wheel
Jeez, 35 hours a week and the unions won’t budge. Workers in China and Vietnam work 35 hours A DAY.
If you f*ck up your strategy for long enough, you can tank an entire company.
Thank you MB for reminding this to the world.
The problem is unfortunately much worse overall.
China is killing Germany's car production and has been for a while. It is now just much more obvious, even quality-wise, which used to be a stronghold foundation of german engineering. Expanding eastwards and cutting costs is a losing strategy for Germany - there is a reason why the AfD is gaining momentum, despite their addiction to ultra-right thoughts. Meanwhile, incompetent people such as Merz (old guy, talks big, acts little) fail hard when they meet reality. Guy is now sinking Germany quickly and he has no decency to want to step back and let more competent people at the least try to fix Germany. Meanwhile France is going closer towards bankruptcy. To some extent this is similar to the 1930s era, also aided by Trump cronies and the Putin mafia.
Germany but also the whole EU, needs to completely reconsider what it really wants; and how it plans to achieve that. The china dictatorship makes much more logical decisions - not in all areas, of course, but they pursue a strategy. Systematically. The EU does not really do that. They just claim they do but in reality they do not. Green energy is fine and dandy but if the prices keep on rising, inflation rises as well, then something does not work with that promise.
TLDR; they didn’t invent anything new in the past 30 years and now Chinese and others caught up on them. It’s hard to maintain the luxury price if your product doesn’t offer anything different and the performance is mediocre.
It seems they are not going to give in to the demand from unions in Germany. To prove their point, they are announcing the consequences of having a workforce that is overpaid and no longer know what real work feels like. German workers need that wake up call if they don’t want to become a third world country.
No, that analysis is wrong. You try to blame it on the workers.
While it is true that the work cost is higher than in Poland, even though Poland closed the gap immensely in the last 10 years, the issue is much more deeply rooted. There is no way Germany can now compete with China. This happened to the USA too, decades before, see how Detroit collapsed. China kind of copied the Japanese and South Korean variant while massively upsizing all of that, including integrating key aspects into their work flows. You only need to look at robot factories. You won't find that in Germany much at all. The innovation changed completely.
Mercedes-Benz just tries to shift the blame to lower costs, which is understandable from their point of view, but does not fix the core problem. Even building in Poland or Romania, won't fix the issue with regards to China. That's not the fault of the workers primarily.
I'm relatively certain Detroit collapsed because their vehicles were junk. The entire reason why 70s era vehicles are so easy to keep running today, is it took just as much work back then to keep them going.
And why can’t they compete with China? Part of that is “work cost”.
By stopping import of Russian gas, yes, there is no way to compete with China.
Imported natural gas used to cost Germany roughly €12 per megawatt-hour (MWh) at the border
Now wholesale prices have climbed to around €60+ per MWh, roughly FIVE times higher than previous levels.
That's goodbye to Industry in Germany - well except for the War Industry which has state protection and funding and doesn't need to be competitive. And China has become even more cheaper since they pay far less for Russian gas.
I don't know why the very bright guys here on HN have such HARD blinkers on correlation and causation between energy prices and energy-intensive industry. Even Merz himself finally admitted it this year but most HN posters want to put their high-IQ heads into cement rather than admit that stopping Russian gas was one the main causes of the downfall of German industry.
If we traverse this blame game to the top level we wind up at capitalism.
This is true. Firing lazy workers are super difficult here. So the wage doesn't move and people with a cushy job do whatever the hell they want without any consequences.
Cost of labor is almost a rounding error in car making. Energy and equipment are much important.
Cars are mostly built by machines.
A quick google shows they make about 45k/year (pre-tax). Even for Germany that is not a lot of money. That is less than the median Germany salary. Mercedes is asking them to work 40h/week without an increase in monthly pay. Who would accept that without a fight? Mercedes does not build cheap cars, I am sure they can afford reasonable pay. Have you worked in car manufacturing? Do you know what "real work" feels like?
Workers shouldnt have to live poorly so you can buy a cheap German car. The reality as the GDP goes up and wealth and wages go up, you can no longer compete in manufacturing compared to poorer countries. This is how capitalism works. Blaming the workers is entirely wrong. Everyone who works should have a good wage. Germany is just experiencing what the US experienced 20-30 years ago when it admitted its best moving a lot of manufacturing overseas. Near everything you own is made in these poorer countries, but that's not a problem, but somehow when it comes to cars, people take offense.
Until we achieve worldwide socialism where it doesnt matter what is made where, this is how its going to be. National borders will dictate economics and what is best done in those countries. The wealthy west simply cannot compete on manufacturing anymore.
Labor costs for a car are in the single digits percentage wise, in Germany. It’s laughable to blame the workforce for mismanagement.
yes for sure it's the fault of the lazy overpaid workers not the decisions made by management. and this germany has to wake up narrative is the same that comes from the right wing politicians. so i would call this bs.
Article is pay walled but if the headline is true that's tragic. I wonder if they're going to invest elsewhere or just admit defeat and slowly wind down the business.
I can't help but think this was influenced somewhat by the shutdown of Germany's nuclear reactors thus making energy more expensive and all the knock on effects.
basically, management is in a standoff with the unions about working more than 35 hours without paying for it, they also don't want to pay holiday bonuses.
Citing high production costs, they are looking to the US and want to bring costs in Germany down to the production costs in the US.
Nothing about what cuts the management is willing to take.
> Citing high production costs, they are looking to the US and want to bring costs in Germany down to the production costs in the US.
Which is funny since both are much higher than China. These lagging car industries will only be able to be protected for so long from Chinese EVs like BYD.
MB is complaining that they can't force the union workers to work longer days without extra pay. They are also complaining that Chinese automakers are selling well in Europe and are much cheaper to build. The second complaint is completely valid, I don't see how domestic auto making can survive when you can pick up a BYD for much less.
Mercedes-Benz turned a net profit of $5.3 billion last year. Even if they had had a bad year, they would have assets - tangible and intangible - and potential for turning things around. There's plenty of stakeholders with, well, stakes in the business and incentives to see it do well.
How does one come to wonder if they are going to "slowly wind down the business"?
Yeah, the paywall is questionable - I don't think I'd read them enough to be worth paying the price even though I understand they need to make money...
My bet (edit: reading other comments I'm glad I didn't put money on it... leaving this comment anyway) based on other cases of this is they are fighting a law (or several laws), and are making this threat as a "change the law to favor us or we will leave and this prove you need us more than we need you".
I don't know how it will work out for them, I've seen it go both ways. I've also seen this stop some really stupid laws, and also stop some really good laws. Without knowing details of what they are trying to do I can't comment on which side I support.
> I can't help but think this was influenced somewhat by the shutdown of Germany's nuclear reactors thus making energy more expensive and all the knock on effects.
The shutdown had no effect on energy prices in Germany.
I think that energy prices are just a part of the root cause.
The other parts are:
1. German producers really fucked up with the "electric" revolution and were caught a bit with their pants down by Tesla and especially the Chinese brands.
2. Specific to Mercedes-Benz, I believe the brand failed to attract younger buyers. Personally, I associate Mercedes cars with boomers/older genX folks.
3. Price. In a moment in which affordability is a major issue for the majority of people, the base model of the cheapest car (the A class) starts from 42900 CHF.