Inaki Lopez's Last Stand

Scandals: Volkswagen's star executive has been linked with a cache of secret documents allegedly stolen from GM. Guilty or not, will VW stand by its man?

The day Inaki Lopez julted General Motors and joined European rival Volkswagen AG, VW's giddy investors sent the company's stock soaring. Even GM's allegations that Lopez had stolen corporate secrets couldn't stop the rush of enthusiasm. But now the fabled "Lopez boom" has slammed to a halt. For the first time last week, German prosecutors linked Lopez to a cache of secret GM documents discovered by investigators in the apartment of two of Lopez's VW associates. Prosecutors indicated they planned to widen the probe to include VW itself. "investors," says Deutsche Bank's Klaus Jurgen Melzner, "are running."

Jose Ignacio Lopez de Arriortua hasn't been charged with any crimes, and he has denied any wrongdoing. Nonetheless, the growing scandal could herald the end of Lopez's brief but turbulent career at the troubled automaker. The pressure is already building on VW chairman Ferdinand Piech to fire Lopez, a ruthless cost cutter who was known as the "Grand Inquisitor" at GM. VW's stock has dropped 8 percent in two weeks. Furthermore, the controversy is distracting the company's managers at a critical time in VW's effort to remake itself. And, left unchecked, it could begin raising questions about Piech's own job at the company.

If VW does ask Lopez to resign, it could mark the end of the Spaniard's extraordinary career in the auto business. During the 1980s Lopez won high marks in Germany, where he helped current GM CEO Jack Smith revive the company's struggling European subsidiary, Adam Opel AG. When Smith took over the top spot at GM last year, he asked Lopez to cut costs and overhaul the company's North American operations. Within months, Lopez became the symbol of the new, tough GM. While he clashed with the company's longtime suppliers, Lopez's methods pleased investors who had suffered through years of inaction at the world's largest automaker. But by February word leaked that Lopez was negotiating with VW--which shook investors as well as management. GM quickly promoted him, and in early March Lopez attended a meeting in Germany in which a decade of Opel product-development plans were unveiled. Two days later, Lopez said he was leaving. He then changed his mind accepting another promotion to stay put. But on March 15, he decided to leave GM again--hours before Smith was to name him the head of GM's North American operations. Weeks after his departure, seven GM executives followed Lopez to VW, and 40 others were approached. GM got an injunction forcing VW to stop hiring more executives and soon pressed charges against Lopez.

Until last week, though, it wasn't clear how much of a case GM had. A German court in Hamburg overturned an injunction against the weekly magazine Der Spiegel, which VW had tried to stop from repeating allegations against Lopez made in an earlier cover story entitled THE UNSCRUPULOUS ONE. Then, last Thursday, German prosecutors investigating charges of industrial espionage against Lopez and other GM defectors announced that the documents found in the apartment were genuine. Authorities said the papers contained technical data, sales strategies and photographs of Opel's latest new models. Lopez, who was unavailable for comment, allegedly requested copies of certain documents translated into German. The prosecutor's office also said it was expanding the investigation to include the two colleagues of Lopez who had rented the apartment. "These documents are supposed to have been accessible only to the highest representatives of management," the prosecutor's report noted, adding that the questioning of VW witnesses in the case is expected to begin soon.

VW still maintains that it had no access to the documents. But VW's support of Lopez may be wavering. One indication is VW's plan to launch its own internal probe--the company previously had accepted Lopez's word that he hadn't stolen documents from GM. Piech may have already tipped his hand on Lopez's uncertain future, too. Earlier this month he postponed plans to build a prototype plant in Lopez's native Basque country in Spain. It was VW's apparent commitment to build Lopez's superefficient dream factory--the so-called Plateau 6 project--that contributed to his leaving GM. The scandal is also being watched closely by German government officials. Late last week an aide to German Chancellor Helmut Kohl told the German newspaper Bild that "a key VW position such as that of Mr. Lopez must be filled by a person of complete integrity." And on Friday, Piech met with Gerhard Schroder, prime minister of the German state of Lower Saxony, which owns 20 percent of VW, to discuss the scandal, prompting some speculation that Lopez's fall could come as early as this week. Says John Lawson, a research director at DRI in London: "Lopez is now as much an embarrassment as an asset."

But will Piech bend to the pressure and fire the man who helped him shake up the company? Karl Ludvigsen, a former Ford executive who runs an auto-research firm in London, predicts VW will stand by Lopez so long as criminal charges aren't filed. Why? Piech considers Lopez to be a strong ally against VW's old guard. Piech has pushed out a half dozen top executives since January, including the man he beat out for the top job, Daniel Goeudevert. Piech "can't do everything," says Ludvigsen. "Restructuring the company is a five-year job, and he needs strong people around him."

What's clear, though, is that Piech has to put the Lopez scandal behind him quickly. No company is in more need of help than VW, which is suffering from a disastrous year in Europe. The company is also struggling to revive its business in the United States, where it once sold as many as 570,000 cars in one year compared with a paltry 75,000 in 1992. Before Piech was appointed chief executive earlier this year, VW was coming off a 10-year period marked by booming sales and market share. But during the same period, the company overhired and built a massive network of expensive parts suppliers. When sales soured late last year, VW was unable to cut production without losing millions. For example: the company needed its factories to run at 90 percent of capacity to break even, compared with only 70 percent for its efficient rivals. Piech, the former chief of VW's Audi division, was faced with the same job Jack Smith and Lopez took on with GM in the United States. After he took over from Carl Hahn on Jan. 1, Piech launched a radical restructuring of the company. The grandson of Ferdinand Porsche--designer of the legendary Beetle and the founder of the sportscar company--slashed some 36,000 jobs, cut overhead and eliminated certain investment plans.

Despite VW's problems, Piech apparently hasn't approached GM about reaching a settlement in the dispute over Lopez. In fact, it appears that GM won't back down until, as one GM insider says, VW apologizes, returns the documents and removes Lopez from his job. As for Lopez, he has apparently fallen victim to his own fanatical management style. Wherever he has gone he has impressed his bosses-but has made enemies, especially with suppliers that are accustomed to a tradition of friendly relations with their customers. That tradition may be dying, but probably not fast enough to save Lopez. "He'll be the sacrificial lamb," predicts a Detroit insider. And that's just what GM seems to have in mind.

VOLKSWAGEN AG'S CLOSING STOCK PRICES ON THE FRANDFURT EXCHANGE IN GERMAN MARKS

VW's Carl Hahn passes the baton to Piech

Word leaks out of Piech's plans to slash 30,000 jobs

Lopez says he's leaving GM. Lopez takes it back.

GM's Jack Smith bids Inaki farewell.

It's official: Lopez takes the number two spot at VW.

A German court bars VW from courting GM executives.

GM accuses Lopez of stealing secret documents.

Lopez files a defamation suit against GM; Der Spiegel calls Lopez "The Unscrupulous One".

Lopez says VW aims to build a plant in his momeland Spain. VW later backs off the plan.

US Department of Justice reportedly launches an investigation of Lopez.

German prosecutors link secret documents to Lopez; expand probe to VW.

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