FRANKFURT, Germany: Mercedes-Benz has frozen all investment in its German plants and is weighing site closures, as the premium carmaker struggles with the high cost of building cars in its home market, according to a memo to workers seen by Reuters on November 12.

The company decided to suspend investments because it cannot agree with its works council and union representatives on labour cost reductions, according to an interview with executive board members shared on the company's intranet.

Mercedes' production chief Michael Schiebe said management had "jointly decided to halt all further investments in our German locations."

The automaker has been pushing workers to find cost savings. In September, Schiebe warned staff that two plants could close in Germany if there was no progress on the issue.

The November 12 message suggested management is now preparing for potential closures.

"We all want to avoid plant closures at all costs. Unfortunately, however, we must now explore this option in more detail," management board member Britta Seeger said in the memo.

The threats come as negotiations continue with the IG Metall union, Germany's biggest.

The move marks the latest escalation in Germany's auto sector crisis, which has already triggered the biggest ever restructuring at Volkswagen and is threatening tens of thousands of jobs in the country's most important industry.

Volkswagen starts its own negotiations with the top industrial union on November 24, with strikes looming at the turn of the year amid tensions over plans that could lead to 100,000 job losses and the closure of up to four German plants.

In a sign of how quickly the crisis is spreading throughout the supply chain, Schaeffler said earlier this month it would slash 3,460 jobs and close five sites in Europe, four of them in Germany, citing weak demand for combustion-engine autos.

Auto sector analyst Ferdi Dudenhoeffer said that with the industry facing its deepest-ever crisis, the news came as little surprise.

"For months, Mercedes has been emphasising just how difficult the situation is in Germany," he said, adding that the future of the industry was in the balance unless its cost structures could be overhauled.

Consultancy Roland Berger has warned that at least 200,000 automotive jobs could be lost in Germany by 2030, after China fell away as a key profit driver due to intense competition. Those Chinese rivals are now gaining market share in Europe, prompting cries for help from executives calling for protectionist measures from Brussels.