Some 300 Brazilian metalworkers set up a camp to protest against Mercedes Benz after it had terminated 500 contracts in May amid plummeting sales and production at the Sao Bernardo do Campo plant in Sao Paulo.

The assembly line closed its activity on 1 June after car sales fell 40 percent since the start of the year. It is expected to reopen on 15 June, but according to the company, production could remain suspended for longer if demand does not increase.

The company announced on 25 May that it would terminate the contracts of 500 workers who had been placed on a so-called layoff regime, whereby their contracts had been temporarily suspended for over a year.

Banners and tents decorated Workers' Square outside the Mercedes Benz factory in Sao Bernardo since Monday, as workers gathered to demand improvements in employment protection.

"Here we are in our second day of camping out with workers from Mercedes Benz. On May 25, the company announced it was firing 500 workers who were placed on the 'layoff' regime. After this announcement, we began a series of actions against the job cuts," Max Pinho, representative of the Metalworkers' Union and coordinator of a commission for workers at the Mercedes Benz factory, said at the strike on Tuesday.

Mercedes Benz also announced last week that 7,250 workers were to take collective holiday, returning on 16 June, with a further 250 having their contracts suspended.

A previous round of job cuts was announced on 22 April, which was successfully overturned after unions staged a strike.

The developments come as Brazil's auto production is set to drop 17.8 percent from last year, the national carmakers association Anfavea said on Monday, heading into the worst downturn the sector has seen since 1998 when 19 percent of its workforce was cut in the midst of a sharp recession.

Carmakers have trimmed payrolls by 9 percent in the past 12 months, as the profitability of major global companies in the sector falls dramatically, including Fiat Chrysler, Volkswagen AG, General Motors and Ford.