Volkswagen and GM Settle Civil Dispute


Volkswagen and General Motors Corp. reached an out-of-court settlement of their bitter, high-stakes civil dispute Thursday, abruptly defusing one of the most sensational cases of alleged industrial espionage in recent memory.

Until now, observers had been warning that if things reached a worst-case scenario for Volkswagen--if the colorful case went to trial, and GM prevailed--the big German auto maker's financial damages could run well into the billions of dollars.

Instead, according to a joint statement issued by the two car makers, Volkswagen will make a $100-million payment to GM and its German subsidiary, Adam Opel. VW will also buy $1 billion worth of auto parts from General Motors over the next seven years.

In return, GM said it had agreed to drop its civil suit against Volkswagen and a number of top Volkswagen executives in U.S. District Court in Detroit. But criminal charges remain in effect in Germany against the man who started the whole dispute, former GM and Volkswagen purchasing chief Jose Ignacio Lopez.

Further details of the settlement were not immediately available, but the two companies released copies of letters exchanged between their chairmen and board members.

In addition to the two monetary concessions to General Motors, one GM insider said the settlement also bars the controversial Lopez from working for VW "in any capacity" until at least 2000.

Earlier, Volkswagen Chairman Ferdinand Piech had professed great loyalty and appreciation for Lopez, insisting that although the former purchasing boss resigned under pressure last month, he could return to VW any time as a consultant.

The Spanish-born Lopez began his career at GM's European operations and became a legend in Detroit for his unprecedented ability to cut costs. He had saved the company $1 billion and was about to be promoted to chief of North American operations when senior executives at Volkswagen--Europe's biggest auto maker, which had been plagued by poor financial performance in the early 1990s--decided they needed Lopez's skills. They "poached" him from General Motors in 1993.

Volkswagen's performance improved smartly after Lopez came aboard, but GM argued that Lopez had stolen vital trade secrets when he defected. They said he handed over to VW such super-sensitive information as GM's purchasing system, containing the prices of all GM vehicle parts, and draft plans for a highly efficient, new "Plant X."

In March, GM filed a lengthy civil complaint in U.S. District Court in Detroit, contending that Piech spent at least half a year pursuing Lopez, enticing him to not only jump ship but also to steal documents and computer disks.

The settlement of that suit Thursday leaves unchanged a criminal indictment in Germany of Lopez and three close colleagues who followed him from GM to Volkswagen. A state prosecutor here, citing seemingly ample evidence of transfer of GM documents to Germany, has charged the four with embezzlement and misappropriation of trade secrets.

In his letter to Volkswagen's Piech, GM Chairman John F. "Jack" Smith Jr. said his company intended to "continue to cooperate fully with the public prosecutors as requested by them" on the criminal case.

The return letter from Piech says that two of the indicted Lopez colleagues who are still on staff at Volkswagen will be asked to "resign or take administrative leave no later than by the end of January."

One thing missing from Thursday's letter exchange was a flat-out apology from Volkswagen. Late last year, with rumors intensifying that settlement talks were afoot, GM had insisted that it wouldn't back away from its lawsuit unless such an apology were forthcoming.

In his letter to Smith, Piech merely "acknowledge[d] the possibility that illegal activities . . . may have occurred" and said his organization "understands GM/Opel's concerns with respect to possible wrongdoing."

Piech also expressed regrets for some of Volkswagen's more inflammatory statements over the course of the nearly 4-year-old dispute, such as a suggestion that General Motors had fabricated evidence for its charges.

A General Motors spokesman in Europe said this was enough of an apology to satisfy his organization.

"It is an apology," he said. "They have expressed their regrets. We're satisfied that this settlement meets all of our basic requirements."

There were signs that Opel might pay a price in the German marketplace even if GM prevailed in its suit against Volkswagen. Already, some German opinion polls indicated that the public here was annoyed with what were perceived as American-style strong-arm legal tactics.

The racketeering laws General Motors was using in its civil suit in Detroit, which call for the assessment of triple damages in the event of a victory, have no counterpart under German law, and many Germans found the notion of multibillion-dollar damages shocking.

Opel is Volkswagen's top rival in Germany. After Lopez made his defection and began implementing his celebrated cost-cutting and production-streamlining techniques at Volkswagen, Opel lost significant German market share to VW.

At Volkswagen, analysts are divided on whether Lopez had enough time before his apparently forced resignation in November to really shake up the German auto maker and its suppliers and make lasting changes.

In German trading, Volkswagen shares jumped 3.8% for the day, as investors anticipated the settlement.

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