Crusader at the wheel: Ignacio Lopez sees himself as a saviour of the Western car industry, writes John Eisenhammer. But his move from GM to VW led to its biggest upheaval for years

John Eisenhammer
Saturday 03 July 1993 23:02

HIS LANGUAGE reeks of cordite. The world is at war, according to Jose Ignacio Lopez de Arriortua. The cause is the third industrial revolution; the battlefield is Europe; at stake is the survival of the old world's civilisation. 'The battle for the automobile industry is the final struggle,' said Lopez. 'If we lose it, we shall become second-class citizens in second-class countries.'

The Spaniard, aged 52, who devastated the world's most powerful automotive concern, General Motors, in March when he suddenly switched allegiances to Europe's biggest car maker, Volkswagen, does not see himself as a manager. He is a saviour. It is his destiny to lead an industrial crusade against the Japanese infidel. St Ignatius Loyola, founder of the Jesuit order, and Don Quixote are his heroes. He calls those who work in his lean-production teams his 'warriors'; his closest colleagues are 'centurions'. All are urged to follow a special Lopez diet designed to 'heighten the fighting spirit'.

With the inner strength and conviction of a religious leader, Inaki Lopez, as his followers call him, believes he holds the key to unlocking Europe's superior creative powers. 'We can win this battle because the third industrial revolution will be driven by creation, and there is more creativity in Europe than Japan,' he said.

But over the past four months, the international motor world has not been resounding to the fury of battle between Volkswagen and the Japanese. Instead, the missiles have roared across the Atlantic. Like a wounded colossus, General Motors has turned on Volkswagen with a rage hitherto unknown in the motor industry's history.

GM has lost the individual on whom it pinned many of its hopes of turning the tide of losses crushing the vast corporation. But it also smells foul play on a scale unprecedented even in the tough business of car manufacturing. No sooner had Lopez moved over to Volkswagen, taking his closest centurions with him, than he began trying to poach en masse the top executives of GM's European subsidiary, Opel.

Even more alarming for GM was the concern that Lopez and his colleagues had not departed empty-handed. Vast quantities of invaluable information about GM's European operations for the next 10 years are said to have gone missing, according to GM's lawyers. Suspicions of industrial espionage on a grand scale linger in the hallways of the American car giant. What had begun as a transatlantic battle of wills between Jack Smith, head of GM, and Ferdinand Piech, chief of VW, each vying for the hand of the saviour Lopez, has escalated into something potentially far more destructive.

A hurricane of controversy is lashing Volkswagen's headquarters in Wolfsburg. Three times in the past few months, GM has gone to the lengths of taking legal action against its German rival. And each time,at the centre of the dispute stood the figure of Lopez.

The atmosphere among the notables of Germany's automobile establishment was more charged than any can recall for many years as they gathered on 18 April at the private house in Bad Homburg, just outside Frankfurt, of Erika Emmerich, president of the Federation of German Automobile Manufacturers (VDA). The reason for the meeting was Volkswagen's attempt to poach some 30 Opel executives. The tension was heightened when numerous car industry suppliers complained that Lopez, in his new post as VW's head of purchasing and production, was on a confrontation course with the industry in his desperate efforts to claw back VW's large cost disadvantage.

David Herman, 47, the head of Adam Opel, barely had time to develop his criticism before his words were engulfed by a furious general onslaught against Piech. Werner Niefer, then head of Mercedes-Benz, denounced what he called the behaviour of the Wild West and the tactics of blackmailing suppliers. Eberhard von Kuenheim, the aristocratic Prussian with 23 years' experience at the helm of BMW, was almost beside himself with anger. VW was threatening Germany's famed industrial culture of co-operation; it had gone too far.

Piech sat stoney-faced. His defence was terse in the extreme. We are operating in a free market, he said. And then, in a sentence he refused to elaborate on, Piech added: 'I did not approach Lopez, he came to me.' The other car chiefs left Mrs Emmerich's house wondering what that phrase implied. Was Piech already seeking to distance himself from his controversial Spanish saviour?

In Piech's mind, there was no question that only highly unconventional methods could save Volkswagen. At the annual results press conference on 31 March, he described the company, which accounts for 3 per cent of Germany's gross domsestic product, as being in a 'state of emergency'.

VW had lifted turnover by 12 per cent to DM85bn (now pounds 33bn) in 1992, producing a record 3.5 million vehicles, but saw pre-tax profit plunge 66 per cent to DM602m. The company had allowed its costs to run so far out of control that last year the more cars it made, the more money it lost.

It takes between 30 and 32 hours to make a car in VW's core plant at Wolfsburg, which turns out nearly half the vehicles carrying the VW badge. The Japanese regard times of under 18 hours per car as efficient. Daniel Jones, co- author of the book The Machine that Changed the World, described the Wolfsburg plant as an 'industrial dinosaur'.

VW has been the worst-hit of the German producers by the sudden collapse of the market. In the last quarter of 1992, it lost DM400m; in the first quarter of this year, the losses totalled DM1.25bn, more than the profits made at the height of the boom in 1991 following German unification. In the first five months of 1993, sales of VW and Audi cars in Germany were down 21 per cent on the same period the previous year.

It was precisely because he had acquired a reputation for tough, uncompromising management as head of the VW subsidiary Audi that the Austrian-born Piech, 56-year-old grandson of Ferdinand Porsche, who invented the Beetle, was given the task at the beginning of 1993 of rescuing the group. He immediately administered first aid in an effort to stem the haemorrhaging losses.

Extensive short-time working was introduced; production was slashed; the investment programme for 1993 was reduced from DM9bn to DM5.5bn. Some 20,000 jobs are to go in Germany this year and next. But Piech knew that Volkswagen, which saw itself as a social institution as much as an industrial enterprise, needed to undergo a cultural revolution. He believed there was a man capable of making it happen: Ignacio Lopez, who had achieved a fearsome cost-cutting reputation as Opel's purchasing chief in Europe before moving in May 1992 to Detroit to take over GM's worldwide purchasing operations. Piech wanted him badly.

Lopez's rise to such prominence had been dramatically quick. In the space of six years, he moved from being a manager in charge of production at GM's plant in Saragossa, Spain, to controlling GM's dollars 57bn (now pounds 38bn) world- wide purchasing budget.

He was born on 18 January 1941, in the small working-class town of Amorebieta, just outside Bilbao, capital of the Basque country. There he studied engineering, specialising in production techniques, before going on to work in Spain for Westinghouse and then Firestone as manager in charge of production development and quality.

It was only when he moved to GM in 1980 that Lopez's extraordinary talents really began to unfold. Cars were his element. In Saragossa, he started to develop his ideas for achieving more efficient production processes, and his passion for taking on and beating the Japanese. His breakthrough into the big league came in October 1987, when he was moved to Russelsheim in Germany to take charge of all of Opel's parts purchasing.

Lopez's innovation was to turn the pricing principle on its head. Prices were no longer to be set by production costs. Rather, production costs had to be tailored to the prices that clients would accept. Having established such a price, he would then take a margin for the supplier - 'since obviously they must make a profit' - and whatever is left is production costs plus the car company's own profit. This did not imply a drop of 5 or 10 per cent, but 20 to 30 per cent or more.

'I do not want to hear any more that prices are already down too far and you are making no profits,' Lopez told suppliers. 'We have to change our attitudes. No more excuses. Instead, creativity in action, in a process of continuous improvement.' Lopez did not just demand these massive price cuts. He offered to help find ways of achieving them. The same hit squads of lean-production specialists that Lopez used to comb through all aspects of the production process at Opel fanned out among the suppliers, spending a week examining their manufacturing techniques. The Spaniard was unforgiving - either his exacting requirements were met, or the suppliers were cut off.

In the suppliers' sector, an influential one in German industry, the name of Ignacio Lopez evoked a mixture of fear, loathing and respect. The first unflattering nicknames emerged. 'Butcher of Russelsheim' was one.

In 1990, Lopez dubbed his cost-cutting teams 'Picos' - Purchased Input Concept Optimisation with Suppliers. The Lopez revolution was now on full throttle, transforming Opel into the most cost-efficient car maker in Germany. The Spaniard's reputation in GM grew, fuelled by his messianic drive.

It was only in 1992 that Piech, then still head of Audi, first fully realised the power of the Lopez effect. He saw a document of the Federation of German Automobile Manufacturers on supplier prices. The chart showed these rising steadily from 1986 onwards for every German producer except Opel, whose line fell away sharply from its rivals. Piech appreciated that he was looking at a formula for huge productivity gains without any new investment. For an industrialist, this was like a drug.

In General Motors, the Lopez aura had achieved almost mystical proportions. On taking over as chief of the American giant in early 1992, Jack Smith called upon his protege to apply his skills to GM's heavily loss-making core North American operations.

The Picos squads were on the march. Not even the private lives of his warriors were spared Lopez's obsessive attentions. They were all commanded to wear their watches on their right arms - as a constant reminder of their task until GM returned to profit. In his 10 months in Detroit, Lopez saved dollars 1bn, according to GM. Lopez says it was five times that amount.

But the crusader's thoughts were increasingly preoccupied by loftier matters. Since late 1991, Lopez had been working on what he called his dream. The Spaniard's battle plan against the Japanese was divided into stages or plateaux, culminating in Plateau 6. This was a concept, worked out with Opel and GM development engineers, for a revolutionary car production plant. It would reduce the time needed to assemble a car to below 12 hours, beating anything the Japanese could achieve.

The were two keys: to reduce to a minimum - about 20 per cent - the volume of parts made by the car manufacturer itself, on the basis that suppliers can always do it more cheaply; and to reduce overall the number of parts in final assembly. Plateau 6 would be a greenfield plant, made for GM's new generation of small cars.

The climax of Lopez's dream was that this working monument should be built in his Basque birthplace of Amorebieta, with its high unemployment. For Lopez, feted in his homeland as SuperLopez, has political aspirations.

In early December 1992, Lopez received a phone call from a German car supplier saying that Piech would like to meet him for lunch. VW sources say the call was made by Hans Merkle, the 80-year-old patriarch of Bosch, Europe's biggest component manufacturer.

Bosch was driven by concern that VW was heading for a disaster that would have incalculable consequences for the entire German motor industry. In Merkle's mind, only a Piech-Lopez combination could turn it round.

The quiet Austrian and the flamboyant Spaniard met soon afterwards and hit it off immediately. 'It was as if I heard myself talking,' Lopez said of that first encounter. By February 1993, there were rumours of the Spaniard's imminent switch from GM to VW, but he denied any contacts. Lopez was carrying out his own instructions. His warriors must be ready 'indirectly and, when under pressure, directly to lie'.

The denouement began on 8 March, when GM's top brass gathered at Russelsheim to discuss corporate strategy in Europe for the next 10 years. It was late on the opening day when Lopez says he suffered his 'greatest disappointment'. Up on the wall appeared a chart showing that his dream would not come true in Amorebieta but that, if approved, Plateau 6 would be built in Hungary, which has much lower wage costs than Spain.

The following day, the ninth, Lopez accepted VW's offer, said to be worth DM30m over five years. He flew back to Detroit, informing Jack Smith he was leaving. The news reduced many Picos warriors to tears.

The tug of war over the man both car giants regarded as vital to their salvation then began in earnest. Jack Smith offered Lopez the job of head of GM's entire North American operations. When that still proved insufficient, Smith agreed to build Lopez's dream plant in Spain. On Sunday 14 March, Lopez drafted a speech worthy of Hollywood's finest, to be given at a specially called press conference at 3pm the following day. 'Saturday morning we were up early, preparing our luggage, to go to the airport and then I just could not move,' it ran. 'I was stopped by the affection and love of the people of General Motors . . . It was the warmth and love of the people that so impressed me that I will remain here at GM.'

The speech was never given, for that evening Lopez received a phone call from Piech. What was said is unknown except that the VW boss drew attention to a 'mutual secret'. On Monday morning Lopez was informed that the GM board had approved Smith's offers. But by the time of the press conference, Lopez, his wife and three children were already on a plane to Germany. Smith was given a note. 'Sorry, I've changed my mind.' To a bemused audience, Smith said: 'It is not clear to me what his intentions are, or where he is at the present time.'

On 16 March Piech unveiled in Wolfsburg his turnaround team for VW. The star of the show was Lopez. The Spaniard made his entry over heaps of bodies, Piech having previously cut down virtually the entire VW old guard. In the following days, seven of Lopez's closest GM colleagues also re-emerged in Wolfsburg, having slipped away from Detroit without notice or explanation. Lopez and Piech immediately set out to lure some 30 Opel senior executives and lean- production experts, offering to double their salaries.

GM and Opel's anger and disappointment at the loss of Lopez exploded into public fury. At the beginning of April, Opel won a court order preventing VW from poaching any more of its people. Karl Ludvigsen, former manager of Ford Germany, who now has a consultancy in London, said: 'I cannot remember an attack of such proportions. It is simply not kosher.'

Opel turned to the courts again, trying to have Lopez's seven colleagues who departed Detroit without notice barred from working for VW for a year. This time, however, the judges sided with Volkswagen, arguing that such was Lopez's charisma that his colleagues had followed him without needing inducement.

But something else more sinister, more alarming, was haunting Smith and Herman. As GM executives pieced together events following Lopez's dramatic exit from Detroit, they say they discovered a huge number of confidential documents relating to the company's European operations were missing. This information covered all the most sensitive areas - advanced purchasing plans, new model programmes, engine development, and price lists for all 60,000 parts used by Opel and Vauxhall.

'If this stuff fell into the hands of a competitor, it would really hurt Opel,' Herman said. Further GM investigations suggested that Lopez and some of his colleagues, notably his right-hand man, Jose Manuel Guttierez, had been gathering information for some time.

'In their last few months at GM, Lopez and his colleagues got a lot of information, confidential information, far more than they needed for their work,' Herman said. 'After they left, we could no longer find this information. The question is, where is it?'

At the end of April, Opel instructed the state prosecutor's office in Darmstadt to open investigations against Lopez and colleagues on suspicion of breach of trust and 'for what we believe is the taking of confidential documents'. Having won Lopez, Volkswagen found itself engulfed by scandal. Germany's most influential magazine, Spiegel, filled its cover on 24 May with a picture of Lopez, entitled 'The Unscrupulous One'. Volkswagen's reputation risked falling through the floor.

Piech fought back. 'It is incomprehensible to me the ways and means that are being used not only to discredit the flawless reputation of Lopez and his co-workers, but also the image of the whole VW concern,' he said.

Opel's temperature jumped even higher on 14 June, when Lopez held two press conferences, in Hanover and Madrid, during which he confirmed VW's intention to build a revolutionary car plant in the Basque country. He left little doubt that this was his dream factory, and it would be built in Amorebieta.

With an unquenchable flair for drama, Lopez then stunned an audience of Madrid businessmen by referring to Germans as 'squareheads'. After frantic hours the following day, the VW press office in Wolfsburg decided that Lopez had been praising his new employers for their 'determination and persistence'.

Opel did not buy the Lopez line that the VW dream plant would be entirely different from his GM dream. 'Do you really believe one can come up with a totally new concept between mid-March and mid-June?' Herman asked.

Opel is now turning to political contacts to step up the pressure. The Darmstadt prosecutor's investigation into the missing documents is proceeding with unusual slowness, Opel says. Suspicion is growing that such tardiness may reflect a wider reluctance to take on a company that is a national symbol. If there were any truth in GM's accusations, not just SuperLopez but Volkswagen would be devastated. Can such a thing be allowed to happen?-

(Photograph omitted)

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