Gm Vs. Vw: Not With A Bang, But A Settlement

That's how their battle will probably end--eventually

General Motors Corp.'s top international executive was trying to be statesmanlike and remain mum on GM's long, bitter feud with Volkswagen. But Louis R. Hughes, president of GM's international operations, couldn't quite resist a slap at VW's Jose Ignacio Lopez de Arriortua, the former GM executive accused of stealing trade secrets from GM on VW's behalf. Queried after a speech in Detroit on Dec. 3 about a new VW plant Lopez established in Brazil, allegedly using a plan pilfered from GM's files, Hughes noted with a wry wink that it "seems very familiar."

Lopez is gone: He resigned from VW on Nov. 29, a move the German carmaker surely hoped would assuage GM at least a bit. But more punches were flying almost as soon as he walked out the door. First, VW's feisty chairman, Ferdinand Piech, pledged he would hire Lopez as a consultant, even as he continued to pay his former lieutenant his full $2.6 million salary until March, 1998, and cover all his legal bills. Then VW promoted Lopez protege Francisco Javier Garcia Sanz to replace his mentor on the auto maker's management board.

TEAM XEROX? GM fumed and demanded that VW purge all of Lopez' faithful followers, whom it accuses of helping Lopez steal thousands of highly sensitive documents when they followed him to VW in 1993. GM also is demanding a public apology and substantial damages. Railed David J. Herman, Chief Executive of Adam Opel, GM's German unit, to Reuters on Dec. 3: "There is no chance right now to go forward" with settlement talks.

Both sides, however, admit privately that a settlement is almost inevitable--eventually. Indeed, sources close to the case say GM may come to the table once VW's supervisory board decides in March whether to renew Piech's contract. And German Economics Minister Gunther Rexrodt said on Dec. 4 in Bonn that he planned to discuss possible solutions to the dispute with U.S. officials at the World Trade Organization meeting Dec. 7-13 in Singapore. Predicts Morgan Chu, a senior partner with Irell & Manella in Los Angeles: "This case will end up getting settled."

Compromise seems likely partly because GM faces a tall legal challenge in proving its major contentions against VW. In its U.S. civil case against VW, GM is expected to seek $4 billion in damages--based largely on its contention that parts price lists Lopez allegedly stole allowed VW to squeeze $3.5 billion out of its cost structure. To prevail, GM must show that VW not only stole secrets, but benefited from their use--and that GM suffered harm as a result. And while VW has gained market share in Europe and Opel has lost ground in the past three years, it will be hard to attribute that solely to Lopez. "[GM's] claim will be monstrous in size but difficult to prove," Chu says.

VW also has a powerful incentive to find a compromise. During the next three months, it will have to turn over to General Motors reams of sensitive internal documents as part of the discovery phase of the civil trial--including the kinds of trade secrets, such as purchasing price lists, it is accused of receiving illegally from GM. While GM is legally prevented from using those VW documents for its own gain, VW's lawyers were nervous enough about turning them over to insist that they be viewed by "attorneys' eyes only."

GM, which will be forking over additional secret papers itself, readily agreed to the lawyers-only rules during a Dec. 3 conference with U.S. District Court Judge Nancy G. Edmunds. But GM added a jab by asking Edmunds that Lopez now be prevented from taking any GM documents with him as he leaves VW. Edmunds reminded VW of its duty to prevent any document thefts, but afterward, VW lawyer James P. Denvir huffed: "I was offended

by that." Opening arguments in the civil trial are not expected to be heard until 1998.

GM's top executives righteously insist they will not be swayed in their quest for justice. But once tempers have cooled a bit more, GM and VW may finally admit that calling a truce in this war would serve the interests of both sides.

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