Companies compete at various price points and as companies evolve they have various fixed costs. If they are a manufacturing type, they will own buildings and equipment, this is both a fixed asset and a cost. Eventually time goes on and sometimes manufacturing changes and the company has not changed the cost structure. The new companies evolve and they have lower manufacturing costs which puts the older one at a disadvantage towards costs. The older one may have goodwill that helps make up or they can charge higher prices, their customers are loyal and a host of other things. In the auto industry, the older companies have the legacy costs and the electric vehicle companies particularly coming out of China have low costs. What will the legacy companies do besides encourage their host countries to increase tariffs.

In an article by Victoria Waldersee and Christina Amann of Reuters, Volkswagen or VW is facing that question and they are considering closing factories in Germany for the first time.

In the case of Germany, one of the advantages and disadvantages is the unions. For many years the unions have been an advantage, but when it comes to cutting costs, different story. In Germany, the structure is a Works-Council made up of unions and Daniela Cavallo, a member of the IG Metal union and head of the VW works-council expects negotiations to be very uncomfortable.

The new head of VW CEO Oliver Blume is considered more of a consensus builder as opposed to the former CEO Herbert Diess who like to butt heads with the unions.

Analysts have in the past named VW sites in Osnabreck, in Lower Saxony and Dresden in Saxony as potential closing sites. The state of Lower Saxony is VW’s second largest shareholder and supports a review.

VW employs about 680,000 people directly has ended its job-security program which has been in place since 1994.

VW which receives most of its corporate VW’s revenues is the first of the brands to undergo a cost-cutting drive to target $15 billion in savings by 2026 as it attempts to streamline operations to survive the transition to electric cars.

At the same time there is an election going on in Germany and VW’s announcement does not help the ruling party.

Linking to dividend paying stocks, it is very easy to get attached to a company which has made profits for years and can pay dividends, then the industry changes seemingly before your eyes. There are many options and giving the size and complexity of VW to the German economy all options will be on the table or there tends to be breathing room. Transitions means many things to investors, but one thing it should mean is looking at alternatives.

There are more questions than answers, till the next time – to raising questions.