Think of this story as a movie that doesn’t have an end yet-a movie about corporate intrigue, ruthless competition, industrial espionage, romantic dreams and the quest to find a better way to build a car.
The central character is Jose Ignacio Lopez de Arriortua, 52, only a few months ago the golden boy at General Motors Corp., currently in a key job at Volkswagen in Germany and, it appears, stuck in one of the biggest messes in auto business history.
Like any movie without an end, some of the details have to be fudged while prosecutors and investigators in Germany are aggressively chasing the case. The FBI and the CIA, eager to protect U.S. industrial secrets now that the old nemesis, Soviet communism, is dead, are watching and, in the FBI’s case, investigating, too.
Thus far, Lopez has been cast in many roles.
First, he was the sharpest cost cutter ever to enter the executive suite at GM. (And now, in GM’s view, a villain.) He left GM to become Volkswagen’s great hope to snatch profitability from the jaws of doom (a view that changes as the plot deepens). And he is the grandest son that Amorebieta, his hometown in northern Spain, has produced in modern times (an honor not tainted by German news accounts that label him “The Unscrupulous One”).
Add to all of those the one possible role that is causing the most controversy: suspected industrial master spy.
The plot:
A quiet, stunningly effective engineer from Spain’s Basque country scratches and struggles his way over 13 years, just about to the top of General Motors. He is the man of the hour, the moving force determined to save the industry from its own wretched excesses.
He sails the corridors of power, winning allies and making enemies even as he slashes away at the inefficiency that plagues Detroit’s biggest auto company.
And always, somewhere in the back pages of the schematic he has drafted in his engineer’s mind, rests the dream: an auto plant in his provincial homeland in Spain.
The scene shifts to the Basque country, beautiful and full of happy people already celebrating impending good fortune and the promise of guaranteed long-term employment in the auto business. There is wine and cheese and good bread and lively folk music for everyone. There is some talk of a statue of Lopez for the square in his hometown, Amorebieta.
This was not to be a typical auto plant.
It would be a state-of-the-art venture reflecting Lopez’s own ceaseless push for economies. It would put his company back into the world car game in a major way and solve a whole spectrum of nagging production problems, all at once.
That would be a big project, providing hundreds of jobs for his countrymen and conferring living saint status upon him. He’d also be the envy of the car-building world, another honor, particularly for an engineer.
Lopez’s reputation for efficiency was known far and wide and well recognized at the pinnacle of power at Europe’s biggest, and most troubled, carmaker, Volkswagen.
The scene shifts again, along with the music.
From the sunny Basque country, the camera pans across deepest, darkest Germany, to Wolfsburg, just a few miles from what used to be the East-West border.
Cue the Wagner, perhaps something from the “Ring” cycle.
Like a man who lived only on sauerbraten, greasy sausages and baked goods made from lard, Volkswagen is so fat it can barely move, so far beyond the spunky, funky image it presented in selling vast numbers of Beetles to Americans only a few decades ago that it is no longer recognizable.
It has virtually lost its place in the rich American auto market, whittled to almost nothing by aggressive Japanese marketing of their imports and by U.S.-built cars, along with vast improvements in the latter.
Tariffs and trade regulations have protected enough of VW’s market to make it the biggest carmaker in Europe. But dependable growth is mother’s milk to the modern corporation and the American market, with its high income and its insatiable appetite for just about everything material, offers too much potential for VW to ignore.
Volkswagen knew its problem and it knew at least part of the solution. It must have the brilliant Spaniard with his cost-cutting and car-building ideas, and it must have him quickly.
Many developments have flowed from that decision, not the least of which is the claim by GM and sources cited in various German media that, either when Lopez shifted to Volkswagen last March or long before he officially took the leap, he delivered to Volkswagen the keys to the heart of General Motors’ European subsidiary, Opel A.G., in the form of all kinds of confidential planning documents.
At this point, as they say in the movie business, the plot speeds up quite a bit.
Undoubtedly, before this is over, there will be many versions of what happened. It might become the auto world’s Rashomon.
Based on what has been revealed so far, here is one script: An embittered Lopez, upset because GM rejected his plan for a car plant, decides to leave General Motors and go to work for Volkswagen as head of production. But GM executives are determined to persuade him to stay. There are emotional confrontations, according to various accounts presented in German court. He is begged to stay and told by GM executives that without him, General Motors will collapse and thousands of families will lose jobs.
But, because a Basque never breaks his word, Lopez says, he goes to Volkswagen.
A very public feud
And that starts a very public feud between General Motors and VW.
GM claims Lopez and a handful of GM executives who left the company with him took along hundreds of pounds of documents in boxes-allegations published in several articles in the German magazine Der Spiegel-while VW accuses GM of playing some role in a frame-up and charges that GM is trying to drive Volkswagen out of business.
What was in the boxes?
Der Spiegel’s May 24 cover story reported the cartons, found in the apartment of one of the GM workers who moved to VW with Lopez, contained confidential price lists, secret construction plans and car model studies-all from GM-Opel.
Assuming that were true, Volkswagen would know the manufacturing costs in all European Opel plants and the prices the GM subsidiary was paying for some 6,000 components that go into its cars.
That would mean VW chairman Ferdinand Piech would know all details about his rival’s motor and model policy right up until the year 2003. It would give VW the chance to take the lead not only in the marketplace, but in production, too.
The magazine stories also raise some questions about Lopez’s claim that he decided to leave GM only after he realized the Basque plant would not be built. That was in March. But the magazine said Lopez and seven GM-Opel workers who followed him to VW began collecting the documents and passing them to VW as early as last November.
Der Spiegel published another installment of the story last week alleging that even as Lopez was saying goodbye to GM’s chief executive officer and close friend, John F. Smith Jr., an associate at Opel was packing another box full of confidential documents that were sent to a relative of Lopez in Amorebieta.
Lopez has denied all of the charges and VW’s board declared its support for him on Friday, while union leaders at VW and Opel issued a joint statement that same day, saying the flap was hurting sales and urging at least his temporary suspension.
The backdrop for the controversy is competition between two auto giants, GM with its Opel A.G. subsidiary in Europe, and Volkswagen with its ambitions to take back some of the American market, improve sales in Europe and cut its costs.
A `ruthless’ cost cutter
There was a time when General Motors controlled half of the U.S. auto market, an era before the arrival of the Japanese in which only Volkswagen and a handful of other foreign autos were sold in the United States.
GM’s physical plant was built with that share of the market in mind, as was its payroll. Now that it has dropped to just 35 percent of the market, the American auto giant has been forced to close plants, cut workers and look for other efficiencies.
Volkswagen is in an analogous position in Europe.
Headquartered in Wolfsburg, it found it had to pay beyond top dollar to lure workers to its huge plant, which is the size of the principality of Monaco, but located in an unpopular and unspectacular part of Germany.
There are 130,000 people in Wolfsburg, and two of every three workers in the town are employed by VW. This year alone, VW has pledged to cut $5 billion in costs. Its workforce already has been cut by one-sixth to 54,000, and is expected to drop below 50,000 as the economy programs continue.
It takes 30 to 32 hours to build one of VW’s popular Golf autos. The Japanese take about 12 hours per car. The French have a much better record than Volkswagen, by some 20 percent.
Overcoming this inefficiency is one of VW’s biggest challenges, and as it happened, Lopez’s reputation for high efficiency and producing profits despite hard times was legend, indeed it was the reason why his rise at General Motors was so meteoric.
The New York Times visited his hometown and researched his background , noting that Lopez’s success at General Motors came because of his ability to produce sharp profits from a European auto market that was in trouble in the 1980s. He joined GM as production manager of its Zaragoza, Spain, plant in 1980 after jobs with Westinghouse and Firestone.
Deeper into the murk
By 1987, he had moved to the Opel subsidiary and “moved ruthlessly” to cut expenses there. He managed to cut the price of parts by 20 percent. While most of the auto industry was facing hard times, Lopez managed to squeeze out some $8 billion in profits between 1987 and 1992.
Patxi Ocerin Aguirre, Lopez’s lawyer and friend, told the Times that corporate glory was not Lopez’s true goal. What he really wanted from General Motors was the auto plant in the Basque country. Talks along those lines progressed to the point at which a Spanish consortium had provided some financing for the $450 million project.
Lopez’s certainty about his plan for the new plant probably also was fueled by his growing friendship with General Motors boss Smith. Smith became the company’s chief last year, after a celebrated boardroom coup that cost then-chief Robert Stempel his job, and one of his first moves was to bring Lopez to the United States. He named him head of General Motors worldwide purchasing.
The new plant initially was to have been owned by the Spanish investors, who were to contract with GM to deliver a specific number of cars each year. Over eight years, GM would buy the plant from the investors. There would be 1,500 employes from various suppliers in the plant, 900 assembly line workers and 50 managers from GM.
Last March 8, when he was attending a strategy meeting at Opel headquarters in Germany, Lopez learned GM had dropped the plan for the plant and was considering building a plant in Hungary, if it would build one anywhere. A month later in Madrid, after he had made the jump to VW, Lopez called the GM plant decision, “The biggest disappointment of my life. If I hadn’t suffered that, I would be working at GM right now.”
From that point onward, everything becomes even murkier.
Lopez’s departure from General Motors was anything but a clean break. He was going. Then he wasn’t. Then he was. Then he wasn’t. Then he did.
The Financial Times of London reported the reason he had become the vascillating Basque was a string of visits and pleas from General Motors executives, played against his pledge to join Volkswagen and, perhaps, what might have been an indication from VW (but nothing concrete) that it was interested in the Lopez dream plant that General Motors was abandoning.
There was a visit to Lopez by Smith, GM finance director Richard Wagoner and GM lawyer Harry Pearce on March 13, according to notes taken by Lopez’s public relations aide. The GM executives “spoke to me like a father and two brothers . . . we made a mistake not to understand your vision . . . we want to learn from our mistakes . . . that broke my heart,” Mr. Lopez was quoted as saying.
But, Lopez said, according to the notes, a Basque does not break his word.
The maneuverings continue
In the wake of the spat, General Motors says it never was committed to building the Basque plant and that the plant’s supporters may have read too much into Lopez’s optimism about the project. GM asked German authorities to conduct a criminal investigation of alleged industrial espionage in the matter.
It is too early to determine where all this will lead.
Lopez has filed his own slander suit against General Motors and says his former employer is focusing on him because it wants to hide its own deep marketing problems. He went to Volkswagen because he is a European and his first loyalty is to Europe, he has said.
German prosecutors are expected to call Lopez for questioning in the criminal case. Meanwhile, Piech, the VW boss, has pushed discussions with Smith of General Motors, obviously aimed at finding some way to cool down what has become a heated encounter. He also has announced that VW has no plans to build the Spanish plant.
How the script will end depends on the investigations.
In the interim, the whole flap has caused huge problems at VW, where Lopez has been resented as an outsider who came, as one union leader puts it, to be a troubleshooter but who instead, brought only troubles.
