Tracks

Abstract

The General Motors/UAW strike in June-July 1998 involved a 54-day work stoppage. General Motors and automobile analysts have attempted to quantify the loss from this strike and have come up with varied numbers. The stock market analysts' reactions to the strike, and consequently, the stock market price reaction, vary depending on which estimation method is employed. There is no real consensus among these various sources because their “economic loss” estimates rely on predictions of how many of the vehicles could not be produced and sold as a result of the strike (or recovered in future quarters). Using recent developments in the cost management literature, we determine the cost of unused capacity or the “accounting loss” suffered by General Motors during the second and third quarters of 1998. We show that General Motors may have lost about $2,332.7 million after taxes (excluding Delphi) due to the strike and an additional $1,313.8 million after taxes (excluding Delphi) due to capacity unused for other reasons. More importantly, such “accounting losses,” to the extent they are not strike-related, are expected to continue each year unless market conditions improve or the company takes action to reduce its capacity.