The man who left GM standing at the altar: Larry Black profiles the Volkswagen chief whose defection has embarrassed a US giant

NO ONE doubted that Jack Smith, the man charged with turning around the world's largest company, believed in Jose Ignacio Lopez de Arriortua, the Basque engineer he brought from Europe 10 months ago to slash costs at General Motors' troubled North American operation.

'Inaki' - as he came to be known in Detroit - was given a free hand to reshape GM's entire dollars 30bn-a-year procurement system. It was a task he undertook with inquisitorial zeal, demanding huge price concessions from unsuspecting suppliers and forcing auctions on those unwilling to yield.

But how much Mr Smith thought of his eccentric purchasing manager only became evident this week, when Inaki staged an auction of sorts for his own services, pitting GM against the rival Volkswagen. After months of talks with the Germans, Mr Lopez, 52, resigned from GM a week ago; Mr Smith, in a final attempt to convince him to stay, last week offered him a job as president of GM's North American operations. It was an extraordinary promotion that would have vaulted him into the position of GM's second-ranking executive.

Mr Lopez, who has described his mission at GM in terms of a battle between Japanese car making and Western civilisation, relented and GM scheduled a press conference for Monday to announce his change of heart.

But the bidding, apparently, had not yet closed. Less than an hour before the conference was to begin, Mr Smith learned that Inaki - who has called the GM executive 'my mentor' since they met at a plant in Zaragosa a decade ago - had accepted a job as Volkswagen's chief of worldwide production with a salary of about dollars 20m over the next five years.

'I'm terribly disappointed at the way this played out,' a visibly embarrassed Mr Smith told assembled journalists. Mr Smith, someone noted later, was still wearing his watch on his right wrist, signifying 'time for a change'. This was a symbolic gesture that Mr Lopez had urged on all GM executives and suppliers for as long as the car maker remains in the red.

'Jack Smith was left standing at the altar,' says Nick Labaccaro, an analyst with S G Warburg in New York, reflecting a broader consensus in Detroit that he had placed too much faith in the Inaki cult that sprang up at GM's technology centre in Warren, Michigan. 'It was a very personal blow to him.'

Perhaps. But the bidding war for the services of this passionate, balding workaholic is also testimony to the growing desperation among big car makers in the US and Europe, whose bloated costs have made them easy targets for aggressive Japanese rivals. What Mr Lopez promises is a cost- control programme that he claims is more effective than the 'lean production' techniques developed by Toyota, requiring all suppliers - both outside contractors and in-house components plants - to be competitive on a global basis.

'We are facing a confrontation of two societies, two ways of life,' Mr Lopez tells reluctant suppliers in heavily accented English, urging them to enrol as 'warriors' in the cause of more efficient manufacturing. 'We don't have time to wait. It's time to begin the battle for our lifestyle.'

There is no mistaking Inaki is a man with a mission. His passion for getting control of industrial input extends to his warriors' diet, insisting they abandon sugar and dairy products in favour of fruit and vegetables. He smiles easily and speaks with simple logic. 'If we have a supplier who is not competitive, we're telling them: 'Gentlemen, you are not competitive.' That is a breach of trust,' he explained in an interview last November. 'Either we can work together to lower the price, or they can make excuses. They can turn up their nose and say, 'Sorry, we are perfect, there is no need to change.' '

Mr Lopez's system involves sending teams of engineers into a supplier's plant for a week to analyse and redesign its production methods, deconstructing each process to determine where value is added, and eliminating wasted movements and superfluous jobs. Hundreds of such crash visits were conducted during his time at GM.

One of the most successful, he claims, was at the plant of a Japanese supplier - believed to be owned by Isuzu - that had already undergone four restructurings under Toyota's own kaizen system. In four days, his Picos system (in English, Purchased Input Concept Optimisation with Suppliers; in Spanish, 'the peaks') achieved a 47 per cent improvement in productivity at the plant, GM claims, and within four months of using the method on its own, the supplier raised its efficiency 74 per cent. 'Our system is better than Toyota's,' Mr Lopez boasts. 'We have scientific methods, they work mostly by intuition.'

Despite his offer to reward low-cost suppliers with life-of-the-vehicle contracts and to share any savings his engineers find with them (theoretically, at least, one-third for the contractors, one-third for GM, and one-third to be passed on to the car-buying public), Mr Lopez's methods engendered great anger among American parts makers. They complained that his negotiating tactics - opening contracts to blind bids, presenting 'finalists' with a lower 'GM target price', and then asking them to come back with still lower bids - amount to 'whip-sawing'.

Mr Lopez's programme, as a number of Detroit trade publications have pointed out, also represented the ultimate hypocrisy on the part of GM: forcing suppliers to improve productivity when GM's own internal components divisions - which provide 70 per cent of its parts - has the worst record in the entire automotive industry.

Critics also say his system relies more on threats than on science - 'a lot of what we're seeing is Inakiphobia, just jawboning prices down,' one argues. Some had predicted Mr Lopez would be forced out by a revolt among key contractors. 'You have a high risk of failure when you take on all suppliers at one time,' warned Joseph Gorman, chairman of TRW, Detroit's largest independent component manufacturer. 'You have to use a scalpel, not a battle axe.'

But Mr Lopez, whose efforts have already produced an estimated dollars 3bn in savings for GM, took these complaints in his stride, having weathered worse in Europe, where GM's suppliers in the early 1980s were far less accustomed to the rigours of competition.

Having moved from the Basque country to Zaragosa only reluctantly - 'my former boss told me I was crazy to say no to the biggest company in the world' - it took Mr Lopez seven years to convince his German superiors that GM should apply his cost principles to the group's purchasing.

'All the Germans thought we were just a bunch of inexperienced Spaniards who didn't know what we were talking about,' he says. 'We changed everything. We took the book of purchasing and threw it out and made our own book.'

In the end, Mr Lopez won over most of GM's suppliers in Europe, as he was beginning to in Detroit: the current issue of a leading US trade magazine, Automotive Industries, names him 'Man of the Year', while the industry weekly, Automotive News, carries the more or less sincere headline 'Adios, Inaki'.

In Europe, GM cites an internal survey that shows that 55 per cent of suppliers who underwent Picos were very satisfied with it - although 19 per cent 'didn't like it at all'. Mr Lopez is not well liked by many in the European supplier community, says James Womack, a Massachusetts Institute of Technology professor and co-author of the study The Machine That Changed The World. 'I've been watching for headlines in the European press: 'Car Bomb Gets GM Executive: Supplier Charged'.'

Mr Lopez would thus seem to have his work cut out for him in Wolfsburg, but his tough bargaining position did win him one perk he was reportedly unable to pry out of Jack Smith - a commitment on the part of Volkswagen to build a new Picos assembly plant, in the midst of recession, back home in northern Spain. Applying a theory he calls Plateau Six, in which suppliers assume not only more production costs but also do some assembly work, Mr Lopez believes he can build a car in half the time it now takes Toyota.

'Inaki is not an overt Japan-

basher,' says one US component manufacturer, though he notes that Mr Lopez kept a Japanese doll on display in his European office at GM. 'He used to laugh and hold it up and say, 'This is all we want the Japanese to be able to build.' '