Mercedes negotiates with unions: Germany's auto industry employment protection model faces transformation

Loosening Employment Protection: A Turning Point for the German Auto Industry

Mercedes-Benz has announced it will formally negotiate with union representatives to seek relaxation of its "ZuSi" employment protection agreement — which has prohibited compulsory layoffs at its German plants since 1997, with the most recent extension prolonging protection until 2034. HR Director Britta Seeger acknowledged that the goal is to enhance competitiveness: "We need to assess whether we have done enough in Mercedes and in Germany to maintain an edge over our competitors."

Behind these negotiations lies a sharply deteriorating financial performance. In the first quarter of 2025, Mercedes' automotive business profit margin plunged from 7.3% in the same period last year to 4.1%, driven mainly by weak demand in the Chinese luxury car market, persistent US tariff pressures, and slower-than-expected EV adoption. While the sluggish European market is not a decisive factor, it has exacerbated the difficulties.

Deeper Drivers: The Inevitable Path of AI Efficiency and Cost Reduction

Mercedes is not acting in isolation. Volkswagen plans to cut 19,000 jobs by the end of 2026 and aims to reduce 50,000 German positions by 2030; BMW issued a profit warning in June, lowering its 2026 automotive EBIT margin forecast from 4%-6% to 1%-3%. It is no coincidence that the three major German luxury carmakers have initiated cost-cutting almost simultaneously.

Artificial intelligence (AI) has become Mercedes' technological fulcrum for restructuring its cost base. Currently, about 60% of employees use AI tools daily, up from just 30% 18 months ago. The company hopes to increase this proportion to 70% by the end of 2026. Seeger carefully positions AI as a productivity enhancement tool rather than a direct weapon for layoffs. However, when AI is simultaneously being used to automate administration, finance, procurement, and even some production functions, and the employment protection agreement is being renegotiated, the direction is clear: Mercedes plans to reduce production costs by 10% by 2027 and by an additional 20% by 2030.

Impact on German Industry: A Cultural Shift from "Lifetime Employment" to Flexible Work

The renegotiation of the ZuSi agreement is highly political. The agreement, which began in 1997 and has been extended multiple times, most recently to 2034 — meaning any modification requires union consent, not unilateral management decision. The stance of the IG Metall union will be decisive. At Volkswagen and Continental, the union has shown willingness to exchange investment commitments for concessions. For Mercedes, the quid pro quo the union demands may include commitments to new product projects or technology investments.

This move signals a loosening of the "social partnership" model that the German auto industry has long prided itself on. If successful, it would represent a systemic weakening of the employment safety net in German manufacturing and could set a precedent for other industries. For the German supply chain, approximately 780,000 direct automotive jobs and a broader industrial ecosystem will face deeper structural adjustments.## European and Global Impact: Survival Rules in the Global Competitive Landscape

The synchronized actions of Germany's three major luxury car manufacturers indicate that the European automotive industry is facing pressure from both China and the United States. In China, local brands are rapidly rising in the fields of electric vehicles and autonomous driving, while demand for traditional luxury cars is shrinking; in the U.S., tariff policies have increased export costs. At the same time, the adoption rate of electric vehicles in Europe has been slower than expected, increasing the financial burden on traditional automakers during their transformation.

If German auto companies successfully reduce labor costs, they may be better able to invest in electrification and intelligentization, thereby maintaining global competitiveness. But this could also heighten industrial competition within Europe, such as cost differences with French and Italian automakers. In the long run, Germany's position as a high-end manufacturing base may be weakened by cost pressures, but if AI and automation bring higher added value, Germany could still maintain its technological lead.

Long-term Trend Assessment: Key Evolutions in the Next 3-10 Years

Over the next 3-10 years, employment protection mechanisms in the German automotive industry are expected to continue weakening but will not disappear entirely. Labor negotiations may shift from "no layoffs" to a model of "investment for flexibility". AI and automation will accelerate the replacement of non-core positions but will also create new technical roles. Companies like Mercedes need to achieve a transformation from "labor-intensive" to "technology-intensive", and the education system and policy support will be crucial.

In terms of the global competitive landscape, German automakers will still face cost advantages and intelligentization speed challenges from Chinese EV companies, as well as potential trade barriers from the U.S. But Germany's accumulated advantages in brand premium, engineering technology, and supply chain resilience remain irreplaceable. The core question is whether Germany can complete an efficiency revolution in its industrial system while maintaining social stability.