Volkswagen shakes up its top board

March 17, 1993|By Carl Schoettler | Carl Schoettler,Berlin Bureau

WOLFSBURG, Germany -- The troubled German automaker Volkswagen AG shook up its top management board yesterday, a day after the company finally bagged Jose Ignacio Lopez de Arriortua, General Motors Corp.'s prized cost-cutter.

The shake-up came as the company announced an 87 percent drop in its 1992 earnings and said it would cut dividends.

At a meeting of Volkswagen's supervisory board, the flamboyant, aggressive Mr. Lopez was appointed chief of a new division for production and purchasing, areas in which he has strong ideas.

He also was named to a seat on the board of management, which runs the day-to-day operations.

The 20-member supervisory board, which includes representatives of both stockholders and employees, dropped three members from the management board, shuffled top managers and replaced the chief financial officer.

The VW shake-up is unusual in German business history, in which changes of this magnitude are rarely made. The changes are a measure of the seriousness of the problems facing Volkswagen.

How serious was underscored by the company's financial results for 1992. Volkswagen reported that group profits fell to $88.3 million, from $669 million in 1991. Strong sales in the first half of the year boosted revenues 12 percent, to $51.4 billion.

The Volkswagen Group includes the VW brand; Audi; Seat, which is made in Spain; and Skoda, made in Czechoslovakia.

The company said it would slash dividends on both its common and preferred stock, from $6.62 and $7.22, respectively, to $1.20.

Mr. Lopez, who was GM's purchasing chief, flip-flopped several times before finally rejecting GM's offer to head its North American operations Monday.

A native of the Basque region of Spain, Mr. Lopez went to Detroit in May after helping make the company's European subsidiary the most profitable in Europe.

He was central to GM's cost-cutting and was credited with slicing $1 billion from GM's parts budget.

VW, one of Europe's highest-cost automakers, sorely needs an economic surgeon with a sharp scalpel.

VW reportedly will allow him to run a plant to be built in Spain along the lines of his own conception of high-efficiency production.

His "Plateau Six" theory would cut the amount of labor to about half that required by Toyota, the efficiency nemesis of automakers everywhere.

German labor costs are the highest in the world -- about $24 an hour in manufacturing.

Slightly less than half those costs are fringe benefits, such as pensions, health care and worker's compensation.

U.S. workers receive about $15.40 for the same package, according to German sources.

BMW decided to build a plant in Spartanburg, S.C., in part because of favorable labor costs.

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