Gm Vs. Vw

IN AN INDUSTRY KNOWN FOR ITS wooden ways, Jose Ignacio Lopez de Arriortua was a lit match. His specialty wasn't just change, but scorched earth. He was a revolutionary, and Detroit had never seen anything quite like him. Other execs "outsourced" the production of parts for their auto-assembly lines. Lopez refined that into an art. With monkish devotion, he would stalk into the plants of General Motors' suppliers and show them how to make things more cheaply and efficiently--saving hundreds of millions of dollars for GM (and making scores of enemies in the process). Brilliant and charismatic, he once bought an antique refectory table and urged his men to pound it whenever they drove a particularly hard bargain. GM was his fraternity, his family, his life. Chairman Jack Smith wasn't just his boss, he once declared rapturously, "he is my brother." Lopez, an ascetic Spaniard with sunken cheeks, banned his ample-waisted American purchasers from eating junk food like Twinkies and fries and put them on a "warrior diet" of fruit and rice. They revered him, his company considered him a savior and his example helped transform the auto industry.

Jose Ignacio Lopez did nothing halfway, and that, finally, was his downfall. He was always erecting a bridge too far to the future. When he stunned Smith by leaving GM for Volkswagen in 1993, Lopez didn't go humbly. He took with him a coterie of top aides and, allegedly, a massive stack of documents that detailed the purchasing strategies he had helped devise for GM. The result was a typically Lopez-like conflagration: a GM lawsuit charging VW with industrial espionage, the most bitterly fought legal battle in automotive history. Last Friday the U.S. automaker won its biggest victory yet in the three-year-old standoff. And Lopez paid dearly for his zeal--or what GM would describe, less kindly, as a criminal act of theft. Only days after a U.S. judge ruled that Volkswagen might be open to racketeering charges for hiring him, and with German prosecutors closing in, Lopez resigned from VW's board.

For many in the industry, it was a tragic end to a career full of promising might-have-beens. Lopez's fall from superstardom, some said, eclipsed even that of John Z. De Lorean, GM's wunderkind turned financial flop, or Billy Durant, the GM founder who ended up penniless, managing a Michigan bowling alley. Lopez's "reputation in the auto industry would have been acclaimed for decades if he'd stayed at GM," said Maryann Keller of Furman Selz. Now "he will never be able to work in the industry again, even if he avoids jail."

That also may be difficult. Not only is Lopez facing almost certain indictment for fraud and theft in Germany (a conviction would mean up to five years in prison), but a federal grand jury in Detroit is considering possible charges of mail fraud and conspiracy. The evidence against him appears overwhelming: written requests for GM documents on the eve of his departure for VW and cartloads of GM papers found at apartments in Germany rented by LOpez aides, with plenty of late-night shredding as police moved in. "This is like the O.J. trial," says one analyst. "He's got the shoes, and there's blood all over the Bronco." That analogy may be overdrawn, but a battery of lawyers on both sides promises a long court battle.

It's impossible to predict how GM's suit will turn out. Some interpreted Lopez's resignation as the first step to a settlement, and both companies' shares jumped slightly in trading Friday. But the blood feud between GM and VW now runs so deep that Opel, GM's German subsidiary, recently created a board game for employees called Let's Arrest Lopez! At a tense news conference Friday, VW chairman Ferdinand Piech rejected GM's demand for an admission of guilt and apology, its stated conditions for a settlement. "I wouldn't know what to apologize for," said Piech, who has insisted that whatever Lopez took from GM was never used by VW. He even floated the idea of hiring Lopez back as a consultant. GM's response, through Opel, was studied outrage. Lopez's resignation has "turned out to be a sham," Opel said in a statement. "It is only a desperate response. [His departure] cannot compensate for the substantial damages incurred by Opel/GM." If the words smacked of negotiation by headline, the tone did not bode well for a lawyers' conference scheduled for Tuesday in Detroit.

Few lamented Lopez's fall in Germany or in the United States. He was hated by many U.S. auto suppliers for driving them to the wall--and allegedly seizing on their innovations and shopping them around to rivals for the best price. In the German tabloids he was known as "Killer Lopez" and "the unscrupulous one." At Volkswagen's main plant in Wolfsburg, workers applauded the cost-cutting king's departure. "We did so badly under him," one told German TV. "He rationalized so much. And I think Piech should go, too."

The Volkswagen chief's own future is, in fact, the next big question mark. So vehemently did he defend Lopez's hiring--and, GM alleges, abet his criminal behavior--that Piech may not survive the fallout. Despite his distinguished lineage (he is the grandson of VW founder Ferdinand Porsche) and recent success at VW, where profits more than doubled in the first nine months of this year, Piech's prospects will grow dimmer if GM wins the billions of dollars in damages it is believed to be seeking. Volkswagen's chief executive once declared, "I'll put my hand into the fire for Mr. Lopez." He was decidedly less protective Friday, even as he rejected suggestions that he or Lopez's other GM defectors should resign as well. "I don't see this as a loss at all," he said of Lopez's departure. "Each one of us is replaceable. Mr. Lopez is replaceable, just as I am replaceable."

What is irreplaceable, however, is Lopez's legacy. It is considerable, for all the enmity his behavior evoked. The final irony, perhaps, is that Lopez's downfall came only weeks after his greatest triumph. On Nov. 18, VW opened a new truck plant in Brazil, built to his specifications, that is considered state of the art for the industry. There, suppliers will not only deliver whole subsections of the vehicle, from brakes to full interiors, but assemble them as well. Some experts expect Lopez's "modular" plant to do nothing less than "revolutionize" the auto industry (GM claims it is its idea). That may be overstated--typically so, critics say--but few deny Lopez's impact. "Very few people in this industry have had a vision of where it was going. He had a very clear vision," says Nicholas Cola, an auto analyst at CS First Boston. It was Lopez who helped transform GM's fat, overpaid suppliers into the leaner, meaner partners in production, saving GM some $4 billion in all, says Cola. "He brought a work ethic and revolutionary attitude to GM that didn't exist before. And it's still there." So too, sadly, is the damage he caused.

From past to presesnt, Jose Ignacio Lopez de Arriotua's passage from General Motors to Volkswagen:

March 1993: After earning a reputation as a tough cost-cutter as head of global purchasing at GM, Lopez is lured to VW.

April 2, 1993: GM wins an injunction against VW's attempt to steal away other top managers.

April 22, 1993: GM files suit against Lopez for industrial espionage.

April 27, 1994: German prosecutors disclose that allegedly classified GM documents have been found in Lopez's home.

March 7, 1996: GM sues Lopez and VM in U.S. court for violating copyright laws.

Nov. 18, 1996: VW builds an advanced truck and bus plant in in Brazil. GM claims the plant was its idea.

November 29, 1996: Lopez resigns from VW.

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