Workers at the Sidnelfingen factory must achieve 500m euros a year in cost savings to avoid redundancies.
The firm said labour costs must be brought in line with those at factories in the north German city of Bremen and in East London, South Africa.
Otherwise, production of the new model would be moved to those plants.
Mercedes-Benz chief Juergen Hubbert said that "the Sindelfingen factory is not the most productive plant, by a long way".
The company wants its German workers to cut paid breaks and extra pay for late shifts and weekends before it will guarantee investment in further production.
Production of new versions of the C-class will not start until 2007 but the investment decisions are being made now.
Workers have offered to forego a contractual rate of 2.8% slated for 2006, which would save 180m euros, but have protested at deeper cuts.