Methodology and Assumptions
The methodology we use here is the same we have employed numerous times, including most recently in the UAW-GM strike in 2019. It involves:
- Identifying the specific cause, and the directly-affected employers and workers.
- Identifying the number of workers in affected facilities or segments of the industry.
- Estimating a share of these that will lose income, during a specific time.
- Considering any substitution effects (ability of employers to shift production, or consumers to switch to different sellers)
- Estimating the direct multiplier for these losses within a specific area. Here, we consider the ability to substitute in the short term among suppliers and customers.
This methodology is described in, among other publications, Business Economics & Finance by Patrick L. Anderson, CRC Press, 2004.
We note that Anderson Economic Group estimates are typically conservative, and do not rely upon exaggerated multiplier effects or assumptions about the number of workers or the duration of work stoppages. In addition, our track record (notably in the recent UAW strike at GM, as well as in the past West Coast port shutdowns) demonstrates that the estimates we prepare during the work stoppage prove to be reasonably accurate, and somewhat understated, once yearly financial records of employers and labor market statistics are available.
- We derive our estimates from both public and industry sources of employment and output, as well as interpretation of the likely supply chain effects for plants given the products they assemble. In general, we look at the location of the assembly plants for individual manufacturers, and then work backward through the suppliers as well as forward through the transit system. See “directly affected plants.”
- For reference, BLS data for Michigan indicate approximately 48,000 “durable goods” workers in the “motor vehicle manufacturing” sector. Most estimates of direct auto industry workers in Michigan, which involves more than “durable goods manufacturing” employers, are for at least 150,000.
Scope of Estimate; Presumed Duration
In this case, we have separate estimates of the effect on Canadian and US workers. The estimate presented is only for the direct effects on Michigan workers. Although not estimated, the losses in Canada are certainly much higher. There are also losses in other US states, which are not included here.
- As noted in the release, this is for a one-week disruption, with the week starting on Monday February 7. If the disruption goes beyond one week, the subsequent week will not be a simple multiple of the first week.
Substitution by Auto Buyers
- We do not assume that there will be substantial losses from the customers of the directly-affected OEMS for a disruption of this duration. However, if the disruption goes further, we would expect that GM, Ford, Chrysler, Toyota and Honda would lose sales to competing makers with less affected supply chains.
Directly Affected Plants
- As of February 10, we had already identified specific assembly and engine plants with suspended operations. These include Delta in Michigan and Ingersoll, Brampton, Windsor, Oakville, Cambridge and Woodstock in Ontario. The plants are operated by GM, Ford, and Chrysler in Michigan and Ontario, as well as Toyota and Honda. For each of these, there are a set of suppliers (tier I and tier II) and transit workers that are also affected. The many supplier and transit workers include those covered by different labor contracts and those not unionized.See “new information” below.
Composition of Lost Wages
- We estimate that more than half of these workers are not covered by UAW contracts with the Detroit 3. Some are members of other labor unions, including those representing electricians, truck drivers, and other skilled trades.
- Most of the lost wages are not covered by formal layoffs. They involve reduced hours, reduced overtime hours, less assigned work, lower bonuses, and less contract work among suppliers and transit workers. We do not assume that all workers in affected companies lose all their wages during the work stoppage.
- Consistent with our practice in past work stoppages and strikes, we include the lost wages of transit workers, including truckers and others that are part of the protests and are residents of Michigan.
We do not include any costs involved in protest actions. Also, we do not include any municipal costs, such as for police overtime. We do not include any costs of property destruction.
- As noted in the release, the tightness of the inventory situation, and the already-existing supply difficulties, makes this disruption immediately damaging.
- Since the late-afternoon Feb 10 release of our estimate, additional plants identified as reducing operations include unspecified portions of Ford’s US operations, Chrysler (Stellantis) Jeep plants in Toledo; unspecified additional Chrysler plants; and the Flint assembly plant for GM. In addition, Toyota identified plants in Kentucky that were affected, as well as confirming the Canadian operations we had already explicitly included. As of (very) early on February 11, we are not yet updating our estimate as we took into account some unidentified assembly plants in our Feb 10 estimate. However, especially given the potential for both increasing disruptions, spreading of the protests, or a settlement or intervention on the Canadian side, we may do that on Friday or on Monday.
- Subsequent to the release of our estimate, the president of the International Bridge Company, the Governor of Michigan, the head of the Teamsters, the head of the Original Equipment Supplier Association, the head of the Canadian Vehicle Manufacturers’ Association, and multiple other business and political leaders in both the US and Canada have made public statements that corroborate the scale of the losses included in our estimate. However, none of these statements were available to us at the time we prepared the estimate.
- Anderson Economic Group’s past clients include nearly every participant in the automobile industry, including governments on both sides of the border, OEMs, suppliers, trade associations and bridge operators. We have not been retained by any of the parties to the work stoppage for the purposes of influencing public opinion or lobbying. This analysis reflects our independent judgement.