There's Another Side To The Lopez Saga

The Lopez affair just won't die. Detroit and Germany alike seem transfixed by General Motors Corp.'s increasingly credible allegations that its former purchasing guru, Jose Ignacio Lopez de Arriortua, and his aides stole and shredded sensitive GM documents when he defected to Volkswagen in March.

What the headlines obscure is Lopez' legacy, far less publicized, at GM. During his nine-month reign atop GM's North American purchasing department, Lopez and underlings employed heavy-handed tactics in an attempt to slash $4 billion from the auto maker's parts bill. GM, now pushing prosecutors in the U.S. and Germany to nail Lopez for industrial espionage, apparently tolerated many questionable strategies when Lopez turned them on its own suppliers.

GM Chief Financial Officer G. Richard Wagoner Jr., who assumed Lopez' duties in April, admitted as much in a speech to suppliers in Traverse City, Mich., on Aug. 6. In its rush to cut costs, GM communicated poorly with suppliers and, in a few instances, leaked their proprietary information to the competition, Wagoner said, acknowledging that "there have been some cases where we have beEn out of bounds."

TORN CONTRACTS. GM is now in a sticky ethical situation. As Carnegie Mellon University Management Professor Gerald C. Meyers, who once headed American Motors Corp., puts it: "When it's used for GM, it's a boon. When it's used against them, it's a terrible thing."

Even the largest and most powerful of GM's suppliers are unwilling to detail Lopez' purported tactics on the record, for fear of angering their largest customers. However, dozens have privately outlined their experiences to BUSINESS WEEK.

Lopez, they say, often tore up long-term contracts. Indeed, a recent survey of 110 automotive suppliers by research firm ELM International Inc. found GM had reopened contracts "frequently" 10 times more often than Ford Motor Co. Suppliers also allege that Lopez exaggerated rivals' bids to compel them to bid lower still. And even when Lopez sent teams of engineers to suppliers' factories to help them cut costs and promised to share the savings with them, "he shared it 100% with GM," grouses another supplier. Lopez won't comment on the claim, or on any of the suppliers' allegations. Neither will GM.

Foreshadowing GM's current charges, what riled suppliers more than anything was Lopez' allegedly cavalier handling of proprietary information. Some suppliers say they were shocked to learn that Lopez had circulated to their competitors blueprints of their top-secret technology, in hopes of eliciting lower bids. That made it easy for competitors to underbid, since they didn't have to recoup research and development costs. "If there's anything that sends a supplier through the ceiling, it's taking our information, our [blue]prints, to our competitors," says Timothy D. Leuliette, head of ITT Automotive. Leuliette wouldn't say whether that happened to ITT itself but confirmed that he knew of "some instances."

DAMAGE CONTROL. The ELM survey showed just how GM's vendor relations have frayed (chart). Of a dozen North American companies, GM ranked last in professionalism, cooperation, and communication. "It's an astounding fall," says Paul G. Haelterman, business-development manager for Douglas & Lomason Co., a car-seat maker in Farmington Hills, Mich. "Before, GM's purchasing staff was the most professional and ethical one around."

VW says Lopez has started to work his magic in Europe: His measures, CEO Ferdinand Piech says, will save over $410 million this year. Pretty dramatic, but VW might do well to reflect on the potential fallout now facing GM. Some key suppliers are reluctant to take their new technology to GM and are shifting their brightest engineers to work for Ford and Chrysler Corp. The risk: Future GM products will fall short in innovation and quality.

To avert that catastrophe, GM must quickly rebuild supplier trust. Wagoner's willingness to discuss General Motors' missteps is a good start. But to restore true credibility, GM needs to demonstrate that it won't rely on the kind of tactics Lopez allegedly employed. And GM must not use its relentless pursuit of Lopez in Europe to evade that tough responsibility.

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