Caught with A Smoking Gun?

By John Greenwald

Tough under any circumstances, competition in the auto industry gets particularly nasty when business is bad -- as it certainly is in Europe these days. Last week German investigators found three boxes of documents from a General Motors subsidiary in the apartment of former employee Jorge Alvarez Aguirre, now with Volkswagen, and a feud brewing for four months flared into a bitter brawl. Alvarez was one of seven executives who last spring defected to Volkswagen with GM purchasing czar Jose Ignacio Lopez de Arriortua. "I cannot say that the papers we found were secret," said a spokesman for the local prosecutor's office in Darmstadt. "But I can say with certainty that the papers did not belong to ((Alvarez))." Speaking through his attorney, Alvarez said the boxes contained no corporate secrets.

The stunning find followed GM charges that Lopez or one of his colleagues took top-secret documents when Lopez bolted to Volkswagen to head its worldwide manufacturing operations. According to GM, the recovered papers included plans for a minicar that Adam Opel, GM's German unit, hopes to roll out in the mid-1990s. Also among the papers, GM said, were plans for a superefficient new factory where the car would be built. As German investigators sifted through the documents, GM officials said federal prosecutors in Detroit were also probing charges that Lopez had absconded with corporate secrets. Lopez, once heir-apparent to GM's North American car business, had helped develop the Opel project for GM but jumped ship after the company decided to put his dream plant in Hungary rather than in his hometown of Amorebieta, Spain. Volkswagen had wooed Lopez with promises to build his | plant in Amorebieta, but the dismal state of European car sales forced VW chairman Ferdinand Piech to suspend plans for the factory two weeks ago. On top of Volkswagen's $780 million first-quarter loss and bleak prospects for the rest of the year, Piech could hardly justify the ambitious project.

Neither Volkswagen nor Lopez would comment on the Opel documents, but Piech lashed back at GM in a more personal way. In an interview with the German newspaper Die Welt, Piech implied that Louis Hughes, who heads GM Europe, was waging a vendetta because he lost out to Piech last year in the runoff to be Volkswagen's chairman. Hughes may have the last laugh: if GM makes its charges stick, predicts industry analyst Klaus-Jurgen Meltzner, "either Lopez or Piech would have to go."

With reporting by James O. Jackson/Bonn and Joseph R. Szczesny/Detroit