The Lopez Affair

The auto industry’s nastiest corporate fight in decades (and maybe ever) began unfolding a few years before the 1996 debut of Automotive News Europe and was not laid to rest – legally at least – until five years after our launch. But like mold on a cellar wall, the effects of the battle linger.

The clash pitted two giants, Volkswagen and General Motors, against each other over charges of document theft, corporate espionage and patent infringement. Criminal charges and civil suits were filed in Germany and the US. Personal and professional relationships were shattered.

In 1997, after years of hurling toxic insults and accusations at one another, the exhausted companies agreed to settle their civil suits. The following year, the criminal case in Germany was dropped. A US criminal case has been shelved, but not formally dropped.

At the center of the clash was a mercurial Spanish-born auto executive who brought fanatical energy and dedication to his job and who inspired near-Messianic devotion in his followers.

As head of GM purchasing in Europe, Jose Ignacio Lopez revolutionized the industry by ripping up long-standing contracts, ending cozy relationships and demanding ever-lower prices, steadily improving quality and sparking faster deliveries.

Simultaneously, Lopez was developing his Plateau 8 lean-manufacturing principles and pushing suppliers to adopt them. Suppliers screamed at the assault on their traditional ways of doing business but knuckled under, generating millions of dollars in savings for GM Europe.

In late 1991, GM Chairman Jack Smith brought Lopez and his methods to Detroit in a bid to slash costs and stop the automaker’s huge losses. Lopez delivered. In 1992, his first and only year on the job in Detroit, the Spaniard was credited with lopping $1.1 billion from GM’s annual purchasing bill.

Savings of another $2.4 billion were anticipated for 1993 – $1.5 billion of which would come from existing, renegotiated contracts. In Smith’s words, Lopez had “stopped the bleeding” at GM.

The future seemed bright.

But then all hell broke loose.

In early 1993, the industry was awash in rumors that Lopez intended to bolt to VW. Ferdinand Piëch, VW group’s take-no-prisoners chairman, had spotted Lopez and sent top lieutenant Jens Neumann, then a VW board member, to woo the Spaniard. VW was Europe’s sales leader, but it also was the automaker with the highest costs.

Piëch wanted Lopez to fix the problem. To land him, Piëch promised that VW would build a car plant in the Basque region of Spain, a dream of Lopez’s. He also promised that VW would install Lopez’s Plateau 8 lean-production system at its main plant in Wolfsburg and assemble a new city car that required only seven hours of labor to complete.

Under the Lopez system, suppliers provide component modules for assembly in the factory and are responsible for the unit through final quality checks and delivery. Several automakers now use various forms of the system.

GM breaks promise

One reason the VW offer appealed to Lopez is that he believed GM reneged on a commitment to build his much-desired plant in the Basque region and install his lean-production system there.

In his autobiography, published in 1997, Lopez writes that he learned on March 8, 1993, that GM would build a lean plant based on his principles – in Poland or Hungary, not Spain.

He felt betrayed, he wrote.

“The following day,” Lopez writes, “I realized that the project of building a plant in [Spain] was doomed. I wrote a resignation letter to Jack Smith and also called him on the telephone.”

Lopez said his decision was final. But the news was not announced because Smith was working desperately behind the scenes to persuade Lopez to stay – and thought he had succeeded.

On Sunday, March 14, GM began calling reporters in Europe and the US to announce that Lopez was staying and was being promoted to the powerful new position of president of North American operations. A press conference was scheduled for the following day to reveal details.

But at that event the next day, an embarrassed and obviously shaken Smith came on stage to tell reporters that Lopez had left the building an hour before and already was on his way to Wolfsburg. In his autobiography, Lopez says he could not get past the sense that GM executives – excluding Smith – betrayed him.

Legal battles begin

Almost immediately, GM accused Lopez and three purchasing executives who left GM with him of stealing some 70 cartons of confidential documents related to the future products of GM’s German subsidiary Opel.

GM filed a civil suit accusing Lopez and VW of racketeering, fraud, stealing secrets and other misdeeds.

Simultaneously, German authorities began an investigation that resulted in criminal charges being filed against the four former GM executives in 1996. Raids on the men’s offices and homes were carried out by the German prosecutor’s office and the German press ran inflammatory articles about what became known as the “Lopez Affair.”

Because the German legal system doesn’t allow access to documents that are considered public record in the US, journalists covering the Lopez story had to rely on the companies and the defendants’ lawyers for information.

This worked against VW’s interests because the company stonewalled reporters and denied access to nearly all of its executives. In contrast, executives at GM Europe would spend hours with reporters detailing the alleged damage Lopez had done to the company. This naturally led VW to view Automotive News and other US publications with mistrust, affecting relations between us for years.

Three years after Lopez had bolted from GM, for example, VW’s Neumann was asked during an interview with ANE

for an update on the situation. Neumann, turning bright red, loudly accused us of being biased and stormed out of the interview.

By 1998, though, the drama had nearly run its course. German prosecutors dropped all criminal charges against Lopez and his three colleagues that year in a settlement that required the four to donate a combined DM590,000 (about $328,000) to charity. Prosecutors said the case was “too cumbersome, too complicated and was no longer in the public interest to pursue.”

The previous year, GM had agreed to a face-saving out-of-court settlement of its civil suit against VW. In that deal, VW paid $100 million in damages and agreed to buy $1 billion in GM parts over seven years. As a key part of the settlement, Lopez agreed to leave VW.

In May 2000, a US grand jury in Detroit nearly revived the saga by handing down a six-count criminal indictment accusing Lopez of stealing critical trade secrets and other valuable information from GM. The US Justice Department also sought to have Lopez extradited from Spain to stand trial in Detroit.

But in 2001, Spain’s highest court ruled that Lopez could not be extradited, effectively closing the case. Only if Lopez leaves Spain and is arrested in a country that has an extradition treaty with the US – which includes most of Europe – could he see the inside of a US courtroom.

Lopez’s legacy

Over the years, Lopez has always denied stealing corporate secrets and has insisted the documents he took with him when he left GM were his own personal property.

Lopez, who nearly died in an automobile accident in early 1998, lives quietly in Spain and works part time as a consultant. But he is not forgotten. In an industry marked by cutthroat competition and ever-shrinking profit margins, his purchasing system and lean principles are followed by thousands of today’s auto executives.

Although purchasing executives no longer tear up contracts and demand arbitrary 20 percent price cuts, suppliers continue to be squeezed hard.

Manufacturers still pay lip service to “partnerships” with their suppliers, but precedent was set in the Lopez era.

Wolfgang Bernhard, the former Chrysler group chief operating officer who now is head of the VW brand, very quickly earned a reputation as a cost cutter at Chrysler. Shortly after arriving in the US to take on his new job, he demanded an immediate

10 percent price cut from suppliers, followed by a further 15 percent reduction in the coming years.

Sounds very much like Lopez may be back in Wolfsburg.

Diana T. Kurylko was a staff reporter for Automotive News Europe from its launch 10 years ago until 2001. She is now based in New York, where she covers the US operations of Volkswagen group and other European carmakers for ANE’s sister publication Automotive News.

James R. Crate was international editor of Automotive News from 1990 to 2003 and oversaw much of the publication’s coverage of the Lopez saga.