BERLIN — Mercedes-Benz is rolling out a sweeping cost-cutting program following a disappointing third quarter in which profits in its passenger car segment fell by two-thirds and its margin fell to just 4.7 percent.
The automaker aims to reduce costs by several billion euros annually over the coming years, a company spokesperson told Automotive News Europe sister publication Automobilwoche.
The plan combines cutting costs while also boosting revenue per car sold by increasing vehicle customization.
Mercedes CFO Harald Wilhelm had suggested that cost-cutting measures were on the way during an October earnings call, when he stressed the need to “turn over every stone” following an “unacceptable” third-quarter performance.
Wilhelm did not comment on potential workforce reductions but said that labor costs were under scrutiny. Mercedes’ 91,000 tariff employees in Germany are protected by job guarantees, unlike temporary workers.
Weak demand for S-Class and EQS models has led to nonrenewal of temporary contracts at Mercedes’ Factory 56 in Sindelfingen.
The proposed measures build on the company’s cost-efficiency gains that started in 2019. Those efforts focused on improved standardization across vehicle design and procurement.
Adjustments to production capacities are also on the table, though details about specific locations were not disclosed.
In 2020, Mercedes sold its plant in Hambach, France, that built Smart small cars to U.K. automaker Ineos, which now builds its Grenadier off-roader there.
Mercedes continues to evaluate operations in Aguascalientes, Mexico, where only the GLB crossover is produced.
Localization of supply chains, particularly in China, could also further reduce costs.
Digitalization will be another key element to overcoming supply challenges, Joerg Burzer, Mercedes head of production, quality and supply chain, told Automotive News Europe this year.
Profitability challenges mount
In September, Mercedes cut its financial forecast for the year as the entire German auto industry, from BMW to Volkswagen, struggles to stay competitive amid higher energy costs, inflation and an expensive transition to electric vehicles.
For Mercedes, weaker sales of top-tier models such as the S-Class in China; inventory clearance of EVs; and costly model transitions, such as the G-Class update, were all factors leading to the weak third-quarter results.
Mercedes is also taking a closer look at where it is investing after it decided to build and sell combustion cars for longer than it had planned because of slow EV demand.
Wilhelm said investment decisions will focus on ensuring that customers have a choice between EVs and efficient combustion models across all segments.
In June, CEO Ola Kallenius said that amid slower demand for full-electric cars, the automaker will invest more than previously planned in combustion engine technology, including hybrids, so that they last ”well into the next decade.”
Mercedes’ future product launches
Mercedes is betting on its upcoming product offerings to turn its fortunes around, with the CLA, the first model on the new MMA platform, debuting next year. The CLA will have a long electric range, the latest MB.OS operating system, and Level 2+ automated driving capabilities.
Following the CLA, Mercedes plans to launch electric versions of the C-Class and GLC, an electric AMG and freshened models of the S-Class and GLE.
Wilhelm said the compact class has been streamlined to four models from seven, with an emphasis on higher-end models featuring premium options such as large batteries and luxurious features.
Mercedes optimistic on China growth
While the company has struggled to sell luxury electric models such as the EQS sedan and EQS SUV in China because of high prices and weak demand, Wilhelm expressed optimism about future opportunities there.
He attributed current challenges to economic pressures on affluent Chinese consumers, particularly those affected by the real estate downturn.
Despite these hurdles, Wilhelm said he believes Mercedes’ product lineup is well positioned for growth in China’s competitive EV market.
As part of its long-term goals, Mercedes is doubling down on its luxury strategy, prioritizing profit over volume.
Wilhelm hinted at a strategy update in early 2025, which will focus heavily on increasing vehicle customization — a formula that has already proved successful with high-end Maybach and AMG models.
Source: Automotive News, November 25, 2024