Mercedes-Benz China’s Massive Layoff: A Survival Strategy in a Changing Market

Mercedes-Benz China’s Bold Restructuring: A Survival Strategy in a Changing Market

Mass Layoffs or Smart Business Move? What’s Behind Mercedes-Benz China’s Decision

Mercedes-Benz China has initiated a significant workforce reduction, laying off 15% of its employees in the sales and auto-finance divisions. The move is seen as part of a broader cost-cutting and efficiency-optimization strategy. Reports indicate that affected employees may receive compensation under an "N+9" package, a severance structure that substantially exceeds industry norms. While the full scope of this measure remains unclear, it aligns with Mercedes-Benz’s global realignment efforts in response to shifting market dynamics.

The restructuring follows a downturn in financial performance. In its 2024 fiscal report, the Mercedes-Benz Group reported a 28% decline in net profit, amounting to approximately €10.4 billion (around RMB 794 billion). The company attributes the decline primarily to reduced sales volume, with China—the world’s largest automotive market—playing a central role in this slump.

The Numbers Don’t Lie: A Deep Dive into Financial and Market Pressures

Sales and Revenue Are Falling Faster Than Expected

Vehicle Sales Decline: Mercedes-Benz’s China sales fell 6.7% year-over-year, from 765,000 units in 2023 to 714,000 in 2024.
Revenue Drop: China market revenues declined by 8.5%, from €252.84 billion to €231.39 billion.
High-End Vehicle Struggles: Sales of premium models, a crucial revenue driver, dropped 14.2%, indicating pressure in the high-margin luxury segment.
Regional Disparities: While China accounts for 30% of global Mercedes-Benz sales, its revenue contribution is disproportionately lower, at 15.9%, highlighting margin compression in the region.

What’s Causing This Slump? Three Key Factors

Chinese EV Giants Are Winning the Race: BYD, NIO, and Li Auto are eating into the market share of traditional luxury brands with aggressive pricing, cutting-edge technology, and strong government backing.
Dealership Model Is Under Siege: Traditional 4S dealership networks are struggling against the growing dominance of **direct-to-consumer ** models, which are more cost-efficient and allow brands to control pricing.
Consumers Are Holding Back on Luxury Cars: Macroeconomic uncertainty and changing consumer preferences are leading to lower demand for imported high-end vehicles.

Dealerships Under Pressure: A Struggle for Survival

Once the stronghold of luxury brands, dealership networks are now facing a reality check. Mercedes-Benz 4S dealers report:

The end of complimentary perks like free coffee, snacks, and meals during servicing visits.
Delayed salary payments, a sign of financial strain at the retail level.
Some dealerships considering switching alliances to domestic EV brands to stay profitable.

Furthermore, Mercedes-Benz dealerships are struggling to make money on EV sales under the traditional dealership model, while Tesla and Chinese competitors benefit from more streamlined DTC strategies.

Investor Takeaways: What This Means for the Future of Mercedes-Benz

Short-Term Impacts: Pain Before Progress?

Immediate Cost Savings: The layoffs are a decisive move to cut expenses and maintain profitability amid falling revenue.
A New Labor Benchmark? The "N+9" severance package could set a precedent for labor compensation in China’s auto sector, potentially increasing industry-wide HR costs.
Brand and Consumer Trust at Risk: A shrinking dealership network could weaken customer service and damage long-term brand loyalty.

Long-Term Outlook: Adapt or Fall Behind

Luxury Car Market is Changing: If Mercedes-Benz doesn’t adapt, it risks losing its grip on China’s premium market as local EVs continue to rise.
DTC Sales Could Be the Future: Moving away from traditional dealerships and adopting a Tesla-style direct-to-customer retail strategy may be necessary for long-term competitiveness.
Localization is Key: Increasing investment in localized production and supply chains can help offset pricing disadvantages and protect margins.
EV Development Needs Acceleration: Mercedes-Benz must double down on electrification to stay relevant in a market where smart, AI-driven EVs are dominating consumer preference.

Luxury Auto Industry at a Crossroads: What’s Next?

The restructuring at Mercedes-Benz China is not an isolated event. BMW, Audi, and other foreign automakers are also experiencing slowdowns as China’s domestic brands rapidly evolve. The battle for dominance in the world’s largest auto market is shifting, and legacy players must move fast to stay relevant.

In 2025, expect to see:

More dealership closures and network optimization across traditional luxury brands.
Increased investment in digital sales models and direct-to-consumer strategies.
A continued push for local manufacturing to offset costs and protect market share.

The question now is: Can Mercedes-Benz pivot quickly enough to maintain its leadership in China’s luxury auto sector? The next 12 to 18 months will be crucial for determining the brand’s trajectory in this highly competitive market.