Charges Against Ex-GM Whiz Stir Global Ruckus : Auto industry: Executive who went to VW is accused of stealing secrets. U.S. and German probes under way.
Jose Ignacio Lopez de Arriortua rode into the Motor City last year with missionary zeal. Charged with reversing General Motors’ flagging fortunes, he preached of saving no less than Western civilization with a new Industrial Revolution.
Using guile, persuasion--and, some say, deceit--the mercurial Spaniard succeeded at GM, saving the company as much as $2 billion by wresting lower prices from reluctant suppliers and turning the stodgy auto maker’s corporate culture upside down.
If GM turns a profit in North America this year--as Chief Executive John F. Smith promises--Lopez can take much of the credit. But you can be certain GM won’t be sharing the accolades with its purchasing czar of that period.
Lopez defected to Volkswagen in March, following a Hamlet-like display of indecision. Now he stands accused by GM of industrial espionage, in what could become the most celebrated trade-secrets case ever--a case distinguished by the high rank of the alleged pilferer and the unusually public nature of the dispute.
GM alleges that Lopez and several associates left with reams of confidential data, including the plans for a new small car and crucial supplier pricing lists. The 52-year-old Lopez denies the charges. Nonetheless, he is the focus of criminal investigations by German and U.S. authorities.
On Thursday, German prosecutors said documents found in the Weisbaden apartment of two Lopez aides included sensitive plans to which only senior GM executives had access. German authorities are trying to determine if Lopez ordered the documents purloined.
The affair has become a ruckus of international proportions that could influence trade secrets litigation for years to come.
Corporate spying experts say it is unusual for multinational companies to level such serious charges against a top executive. In the normally clubby German auto industry, GM and VW have gone so far as to trade public insults.
The battle could sully the reputation of the heads of GM and VW, who both put their trust in Lopez. It certainly will determine whether Lopez’s meteoric rise will end in a quick fall.
“He could be this generation’s John DeLorean,” said auto analyst Maryann N. Keller, referring to the flamboyant executive whose efforts to build a new car company collapsed in a heap of legal woes.
Lopez, known by his nickname Inaki, was brought to Detroit in May, 1992, by Smith, his mentor. His mission: reduce the costs of GM’s huge supplier operations.
GM was on its way to losing more than $12 billion in North America in 1991 and 1992. Only its European operations--where Smith had been in charge and Lopez headed purchasing--were prospering.
A passionate, energetic leader, Lopez had an immediate impact on GM’s headquarters operation, spreading culture shock as he imported some of his disciples from Europe and attracted others anxious to change GM’s arrogant, conservative style.
“He is somewhat of a messianic figure,” said Keller. “People suddenly wanted to work in purchasing. They thought they were single-handedly turning GM around.”
Lopez’s quirky style was loaded with symbolism. He urged his purchasing “warriors” to move their watches from their left wrist to the right--an uncomfortable reminder that time was running out on the old GM. He advocated a sugar-free, fruit-laden diet, warning followers never to eat carbohydrates and proteins together.
More to the point, Lopez ordered 20% price reductions from all suppliers. He ripped up contracts and reopened bidding. In some cases, he shared low-cost bidders’ specifications with their competitors.
“His tactics of breaking contracts didn’t sit well,” said Ben Schwegman, chief executive of Precision Plastics & Die, which makes parts for steering systems, transmissions and car interiors. “He told his people to lie.”
Lopez upset Detroit protocol--much like the free-spirited DeLorean in the ‘60s and Ross Perot’s brief, no-nonsense interlude on GM’s board in the ‘80s.
“Within 30 days, he had the entire supplier industry up in arms,” said John McElroy, editor of Automotive Industries magazine. “But his message made a lot of sense--that Western industry better get on the stick or it would fall behind.”
Lopez eagerly helped suppliers that played his game. He set up efficiency training sessions, sending in teams of GM managers to demonstrate how to improve operations and lower costs. Suppliers that succeeded earned long-term contracts.
GM quickly saw cost-cutting gains. In the last three months of 1992 alone, one analyst estimated that Lopez’s efforts saved the company $250 million to $350 million.
Since his childhood in Spain’s Basque region, Lopez had been a student of production processes. As a 10-year-old, he visited the lathe factory where his father was employed and remembers being fascinated by how things worked together in the plant.
He obtained a doctorate in industrial engineering, then went to work for Westinghouse and later Firestone. GM recruited Lopez in 1980 to help develop an assembly plant in Zaragosa, Spain.
Lopez implemented new procedures that allowed GM to produce 370,000 Corsa subcompact cars with 9,000 workers in a plant originally designed to make 270,000 cars with 12,000 employees.
In 1987, he was promoted to head of purchasing for Adam Opel AG, GM’s German subsidiary. He soon was applying the lessons of Zaragosa on a broader scale, earning the title “The Inquisitor” from suppliers who felt squeezed by his methods.
Undeterred, Lopez developed a production theory called Plateau VI--his model of a next-generation assembly plant where cars could be built with 10 hours of labor, half the effort required by today’s most efficient factories. The key change: Suppliers would assemble larger components and install them directly on the line.
Fervently nationalistic, Lopez hoped eventually to build such a plant in his Basque homeland, perhaps for GM.
But in mid-February, rumors began to circulate in Europe that Lopez was being lured by VW, the troubled German auto maker. Ferdinand Piech, heir to the Porsche auto dynasty, had just become chairman of VW. He needed new managers to cut costs deeply.
Lopez denied he was going anywhere.
Then--despite his personal loyalty to Smith--Lopez announced March 10 that he was leaving for VW.
Several days later, GM said it had persuaded Lopez to stay.
But on March 15--just 30 minutes before Smith was to announce Lopez’s promotion to GM’s No. 2 executive slot, Lopez again changed his mind. A shaken Smith told reporters: “It is not clear to me what his intentions are.”
Several days later, Lopez’s intentions became evident. Seven of his associates in Detroit and Europe resigned from GM and joined him at VW. GM, saying VW had approached 40 other Opel managers, sought a court injunction to bar the recruitment effort.
GM said it feared that Lopez’s defection would hurt if he revealed GM development strategies in Europe. The auto maker demanded that Lopez sign a statement saying he did not take confidential documents. Lopez signed; GM said the statement was inadequate.
But the company saved its harshest broadside for its annual meeting in Oklahoma City on May 21. GM revealed that it had filed a criminal complaint against Lopez with the Darmstadt state prosecutor. The complaint prompted a criminal probe in Germany.
GM’s actions surprised some management experts.
“It’s unprecedented,” said Eugene Jennings, emeritus professor of management at Michigan State University. “I’ve never seen such tenacity in pursuing one individual.”
Since there are few real secrets in the auto industry, Jennings figures that GM’s legal campaign mostly reflects its combative new corporate culture.
But Barbara A. Rowan, an investigative consultant in Alexandria, Va., noted that if documents were taken from GM, “it is theft.” Such pilfering goes on all the time, she said, but rarely is pursued at such a high level because companies fear embarrassment from public disclosure of the charges.
In denying GM’s allegations, Lopez has said the auto maker is trying to divert attention from its financial woes. VW has accused GM of waging a vendetta.
There appears to be growing evidence that GM’s charges may have merit. Darmstadt investigators recently confiscated four boxes of confidential GM documents from the Wiesbaden apartment of two Lopez confederates.
Georg Nauth, the Darmstadt public prosecutor, said Thursday that the documents contain sensitive information from Opel’s technical development center that would be available only to top GM executives. “Among the documents were papers relating to sales strategies, cost-savings methods as well as statements about the new Vectra,” Nauth said.
Photographs of documents were found, as well. “A part of these transparencies and slides are alleged to have been produced and translated into German at the express wish of the accused Dr. Lopez,” Nauth said. A VW spokesman said the firm was standing by Lopez.
Earlier this week, VW and Lopez were dealt another setback. A court in Hamburg on Tuesday refused to grant VW an injunction that would have barred Der Spiegel, Germany’s most influential news magazine, from repeating charges that Lopez had stolen trade secrets. A May 24 cover story in the magazine had dubbed Lopez “The Unscrupulous One.”
Meanwhile, GM officials confirmed last week that the U.S. Attorney’s Office in Detroit is also investigating the matter. Federal officials declined comment on their probe.
Regardless of the investigations’ outcome, analysts say VW could end up the real loser, particularly if news reports continue to play up the auto maker’s role in Germany’s biggest business scandal since revelations that German companies were supplying Libya with a chemical weapons plant. VW stock has fallen amid the controversy.
There is no question that the effectiveness of Lopez, now VW’s second-ranking official, is being hampered.
Piech already has begun to distance himself from Lopez. After Lopez announced in mid-June that he finally would be allowed to build his Plateau VI plant in Spain, Piech put the project on hold indefinitely.
“The German supplier industry is smelling blood,” said auto analyst Keller. “If Piech feels Lopez is a liability, he will quickly be hung out to dry.”
Profile
Here is background on Jose Ignacio Lopez de Arriortua:
* Age: 52
* Birthplace: Amorebieta, Spain
* Education: Doctorate in industrial engineering, University of Bilbao in Spain in 1966.
* Career: Joined Westinghouse as welding shop director 1967. From 1968 to 1979, worked at a Firestone plant in Spain. Joined GM in 1980 to help design an assembly plant in Spain. Named head of purchasing at Adam Opel in 1987 and later head of purchasing for GM-Europe. Became a GM vice president and North American purchasing chief in May, 1992. Quit in March, 1993, to join VW.
* Business philosophy: Believes Western standard of living is threatened by industrial inefficiencies. Aggressively seeks new ways to cut manufacturing costs.
