Lean machine mirage: Jose Ignacio Lopez's cost-cutting zeal has earnt him respect at VW. But can he bring the car maker back to profit without cutting the workforce? John Eisenhammer reports

Fifteen months since his controversial move to Volkswagen from General Motors, Jose Ignacio Lopez de Arriortua's appointment as production chief is still shrouded in speculation. But it has less to do with the bitter corporate battle between the two car groups over alleged industrial espionage, and more to do with the Basque engineer's crusade to turn around Europe's most inefficient car maker.

VW has turned the spotlight on to Mr Lopez's task: to get VW - 'a duck grown too fat to fly' in the words of Ferdinand Piech, its chief executive - into the air. This means reducing waste, tying down component prices, and reorganising VW's bureaucratic and inefficient production processes with continuous improvement workshops. Since May 1993, 4,100 sessions have been held throughout VW in production, administration, dealerships and with outside suppliers.

'Our workers have identified and cut out millions of marks in waste,' Mr Lopez says. 'Workers were never asked anything before. Now they are being asked questions on how to improve, and are finding waste. They are creative and highly intelligent. Our savings are exponential. They are figures no one can believe.'

The Basque engineer's reputation has taken off since his arrival at Wolfsburg. He has hurled himself with messianic fervour into his crusade. VW claims to have made savings of between DM8bn ( pounds 3.19bn) and DM9bn last year, of which Mr Lopez says 10 per cent is a result of his efforts. But beyond those figures there is little evidence to explain the optimism at VW and last year's 21 per cent productivity rise.

Industry analysts remain sceptical about Mr Lopez's claims to be producing anything different from the Japanese-style continuous improvement - kaizen - techniques adopted by most car makers. 'No competitor is standing still,' says Hans-Joachim Pilz of MM Warburg, the Frankfurt bank. 'Every car company is doing the same as VW and some began far earlier. VW obviously hopes Mr Lopez can work wonders.'

Ferdinand Piech believes Mr Lopez can carry it off. 'His genius is his ability to motivate people. He is the very best,' he says.

VW believes the Lopez magic lies in the speed of change he is pushing through, which will allow the group 1to leapfrog its rivals. There is no doubting the Basque's popularity among the workforce: his appearances on the shop floor are often greeted with applause. Supported by a clique of devoted colleagues who followed him from General Motors, he is doing much to shake up the staid atmosphere at VW.

'Long-standing managers could not begin to achieve what Lopez is doing,' says Alfred Heiser, a works council co-ordinator. 'For the first time workers are being asked what they think and then something is done.'

Mr Lopez quickly achieved savings by slashing suppliers' prices. Too afraid to challenge VW, most suppliers have taken his unorthodox, and sometimes brutal, methods on the chin. The gains are visible: VW has cut the price of its light vans and the Golf diesel, and packed DM6,000 worth of extras 1into the Golf GTI while holding its price.

Mr Lopez says increased value to the customer is the key to success.

But the question is whether the pace of this early success can be sustained. VW is no conventional business, as its most important shareholder, with 20 per cent, is the state of Lower Saxony, a region totally dependent on VW as its dominant employer.

With two state ministers on their side of the supervisory board, workers' representatives outnumber the employer's side - a unique situation in German business, as is the 98 per cent IG Metall union membership at VW. The unwillingness of Lower Saxony to countenance big job losses is a political obstacle around which Mr Piech and Mr Lopez must manoeuvre. While car makers elsewhere are slimming operations, 1VW has given a job guarantee to its 100,000 German workers until the end of next year, despite carrying 30,000 surplus employees. The faster Mr Lopez rationalises, the higher this number becomes. VW has had to institute a four-day week to reduce labour costs and maintain a full workforce.

While Mr Lopez is struggling to solve the conundrum of lean production with job protection, he is gambling on European car sales recovering sufficiently to create gainful employment for VW's unwanted thousands.

'The situation at VW is serious and getting more serious,' says Daniel Jones, professor of motor industry management at Cardiff University. 'Unless Lopez and Piech can get round the Lower Saxony political block and the excess labour force, all their best efforts on the shop floor may be undermined.'

1 While its competitors are moving away from diversification, VW is bringing in work to occupy staff, such as removing old plant, a job that used to be done by outside contractors.

Suppliers are also losing out. Shock absorbers on the next Golf model will come from VW's Braunschweig plant. 'We have the people, we have the works,' says Hugo van der Auwera, one of Mr Lopez's inner circle. 'The fixed costs are there, so we should use them. All we must do is ensure our costs are correct.'

He says VW's trump card will be in greater production once the group uses these parts across the VW, Audi, Seat and Skoda ranges. So it is ironic that Mr Lopez came to VW, dreaming of building the world's most revolutionary, super- lean car factory, and has ended up with a job-creation programme.