Mercedes to cut costs by billions per year as China weakens - report

Investing.com -- Mercedes-Benz (OTC:MBGAF ) is taking steps to reduce costs by billions of euros annually in response to ongoing difficulties in the global automotive market, the Handelsblatt newspaper reported on Thursday. 

While the company has yet to provide specific details on how these savings will be achieved, a spokesperson confirmed that the measures are part of a broader effort to maintain financial stability and resilience in an uncertain economic environment.

The automaker acknowledged the challenges facing the industry, citing global economic volatility as a major factor. The only way to remain financially strong and operationally capable is by continuously improving efficiency, said a spokesperson, as per the report. 

The company reaffirmed its dedication to rigorous cost control measures, while declining to specify whether job reductions would be implemented as part of these efforts, the report said.

German media outlets Stuttgarter Zeitung and Stuttgarter Nachrichten previously reported that senior management had discussed the intensified cost-cutting measures during a conference call, but no concrete decisions or actions were revealed.

Mercedes assured employees that its job security agreement, known internally as "Zusi 2030," remains intact. This agreement guarantees protection from layoffs for operational reasons until the end of 2029, covering the majority of the company’s workforce in Germany.

The automaker's announcement comes after a sharp decline in profits during the third quarter. In late October, Mercedes reported that group earnings had dropped by more than 50% year-on-year, falling to €1.72 billion. 

Revenue also decreased by 6.7%, totaling €34.5 billion. At the time, CFO Harald Wilhelm expressed dissatisfaction with the results and vowed to prioritize cost control and operational efficiency.

One of the company's key challenges lies in China, where sales of luxury models have been weaker than anticipated. This slowdown is particularly problematic as high-end vehicles form the cornerstone of CEO Ola Källenius' strategy. 

In recent years, the focus on premium models has driven record-breaking profits for Mercedes, but a combination of China's economic downturn and increasing competition from domestic carmakers has hurt the company’s performance.

Wealthy Chinese consumers, traditionally a vital customer base for Mercedes, have become more cautious in their spending, and the company sees little sign of improvement in the near term. 

Source: Investing.com