The Aftershock From The Lopez Affair

When former General Motors Corp. purchasing czar Jose Ignacio Lopez de Arriortua walked into Volkswagen's research and development center in Wolfsburg, Germany, Mar. 31, you would have thought Madonna was arriving. Flash guns fired. TV cameras whirred. Reporters popped questions. Lopez, though, kept silent. He said he would make no public comment during his first 100 days as VW's new top purchasing executive.

Keeping mum may have seemed the better part of valor, given the brouhaha Lopez had stirred up with his will-he-or-won't-he departure from GM. Back in the states, the repercussions are still being felt: GM CEO John F. Smith Jr. on Apr. 5 appointed G. Richard Wagoner Jr., GM's chief financial officer, to replace Lopez as head of GM's huge purchasing operation. Then, two days later, Smith said GM would put top officers under formal contracts--something Lopez conspicuously lacked. Under the new rules, executives won't be allowed to work for rivals for three years after leaving the Detroit auto maker.

What got GM so flustered? The company says that it is worried that Lopez may have betrayed its confidence. Within days of his departure, GM asked Lopez to confirm in writing "that he had not taken any documents" with him "pertaining to GM's present and future corporate plans."

WRAPS OFF. At the heart of GM's concerns: Lopez attended a key international strategy meeting held at GM's Adam Opel subsidiary headquarters in Russelsheim, Germany, and at Opel's Dudenhofen test track on Mar. 8 and 9. That gave him an inside look at some of GM Europe's deepest secrets in the two days before he first resigned (table). "Nothing was hidden at these sessions," says one attendee. BUSINESS WEEK has learned that at the meeting GM officials laid out medium-term financial forecasts and sales projections as well as model plans to the turn of the century. And some Opel prototypes were driven on the Dudenhofen track.

By the time Lopez was watching those prototypes drive by, VW CEO Ferdinand Piech had already bagged two senior GM executives for his Audi unit and was close to persuading Lopez to leave.On Mar. 12, Smith temporarily convinced Lopez to stay with a personal appealand a promised promotion. Three days later, however, Lopez resigned again.GM's problems didn't end with Lopez' departure. Once that deal was done, GM says VW stepped up efforts to raid key GM employees--with Lopez' aid, once he quit. To try to stop the recruiting, GM's lawyers on Apr. 2 won a temporary injunction from a Frankfurt court forbidding VW from recruiting any more employees. Opel Chairman David J. Herman alleges that VW has targeted "more than 40 managers at Opel and GM" offering to as much as double their salaries. GM says it has sworn affidavits covering 29 employees alleging they were approached by Lopez, Lopez' VW co-workers, or a Frankfurt headhunter acting for VW. Since Lopez joined VW, GM says, seven GMers have joined the VW group.

'SIMPLY UNFAIR.' Lopez and Piech were not available for comment, says a spokesman for VW, Karl-Gunter Hornig. However, Hornig says, "we have not systematically hired people away, and we won't in the future." GM says that VW has replied to its letters about confidentiality, but that neither company will release the texts of the letters that went to Lopez and Piech or VW's replies. A senior GM Europe executive gripes, however, that VW's reply was "very general."

In the previously genteel European auto market, GM isn't the only one that's beefing. Mercedes-Benz CEO Werner Niefer says that Lopez' recruiting "is simply unfair. His methods are like the Wild West." Mercedes hasn't lost any senior employees to the VW group since Lopez joined up. But last year, when Piech was running VW's Audi unit, Audi hired away a Mercedes exec--and four more followed.

Hornig says VW does not presently plan to contest GM's injunction in court: "We want to work any differences out in the market." Moving the spat into dealers' showrooms may save on lawyers' bills. But GM remains suspicious that its German rival gained an unfair edge when it lured Lopez away.

      FEB. 24  German press reports say that VW CEO Ferdinand Piech has recruited 
      General Motors' purchasing czar Ignacio Lopez.
      MAR. 8-9  Lopez attends GM's international strategy sessions in Germany, at 
      which planned new models and other sensitive information about GM's European 
      strategy are discussed.
      MAR. 10  Lopez resigns from GM.
      MAR. 12  GM CEO Jack Smith persuades Lopez to stay at GM--or so he thinks.
      MAR. 13  Smith firms up a counter-
      offer to Lopez, who tells VW he won't be coming and asks to be released from 
      the contract he signed. 
      MAR. 15  At 10 a.m., GM's board approves Lopez's new appointment. At 1 p.m., 
      Lopez has a friend deliver a handwritten note of resignation to Smith's office. 
      He then re-accepts the VW job. 
      MAR. 22  GM demands that Lopez affirm in writing that he didn't leave GM with 
      confidential documents.
      APR. 2  GM obtains a temporary injunction from a Frankfurt district court to 
      keep VW and Lopez from "systematically" recruiting GM employees.
      APR. 7  Smith announces that GM's top officers will have formal contracts 
      barring them from working for rivals for three years.