Recently, significant news shook the automotive industry: Mercedes-Benz China initiated layoffs on the 26th, affecting approximately 15% of its workforce, primarily in the sales and automotive finance systems, while the R&D department remains unaffected for now. Laid-off employees are eligible for N+9 months’ severance compensation. If they do not secure new employment within the next two months, they will also receive March and April salaries, bringing the total compensation to up to N+11 months’ salaries.

In response to these rumors, Mercedes-Benz China issued a statement on the 27th, acknowledging that business integration or downsizing will inevitably impact some employees’ roles. The company emphasized compliance with local laws and regulations, pledging to provide “reasonable and lawful solutions” through transparent negotiations. Additionally, Mercedes-Benz China stated it would deepen the application of digital technologies to optimize operations, streamline processes, and adjust job roles while supporting employees in acquiring new skills.

Global Job Cuts Amid Plummeting Profits

Mercedes-Benz’s 2024 financial performance revealed a stark decline: group revenue fell 4.5% year-on-year to €145.6 billion, EBITDA plummeted 31% to €13.6 billion, and net profit dropped 28% to €10.4 billion. As Mercedes-Benz’s largest single market, China saw sales decline 6.7% to 714,000 units in 2024, contributing to a 3% global sales drop to 1.983 million units—the primary driver of the company’s annual performance slump.

The layoffs were foreshadowed earlier. During an earnings call, Group Chairman Kang Linsong  stated that workforce reductions are part of broader efforts to enhance competitiveness by creating a “leaner and stronger” organization. Similar layoffs are planned in other regions beyond China.

Traditional Luxury Brands in Crisis

China’s automotive market faces intensifying competition, particularly from the booming new-energy vehicle (NEV) sector, which challenges traditional luxury brands. Mercedes-Benz’s 2024 sales in China hit a five-year low, as domestic NEV brands like BYD, NIO , and Li Auto gain market share with their electric and intelligent technologies. To counter declining sales, Mercedes-Benz aims to prioritize cost reduction and aggressive product strategies, redirecting resources from traditional sales networks to R&D.

Critics highlight systemic issues: Mercedes-Benz China’s rigid sales strategies and weak market expansion efforts have failed to adapt to the NEV transition. Restructuring the sales team and optimizing strategies are deemed critical for recovery.

The automotive finance sector, closely tied to sales, also suffers. Declining car sales reduce demand for auto loans, while competition from fintech innovations further pressures Mercedes-Benz’s less competitive financial products.

Balancing Corporate Responsibility and Strategic Adjustments

Mercedes-Benz China’s N+9 severance package significantly exceeds the statutory minimum (N+1) and industry peers like Volkswagen China (N+6) and Tesla China (N+3), mirroring the N+12 plan at its German headquarters.

While layoffs and generous compensation reflect proactive cost management amid global performance pressures, compliance remains a priority. The company’s adherence to labor laws and enhanced employee benefits reinforce its commitment to ethical governance. In Europe and the U.S., strict labor regulations—such as France’s tiered severance based on contract type and seniority—highlight the complexity of global layoffs. Mercedes-Benz’s approach in China bolsters its compliance reputation and corporate image.

This case underscores the challenges multinationals face in balancing local regulations, corporate values, and operational efficiency. Moving forward, the automotive industry must navigate the tension between profitability and ESG (environmental, social, governance) commitments to achieve sustainable growth.

Author: Circle