VW to build low-price test factory in Spain: GM threatens to block Lopez's 'dream plant' in Basque region

VOLKSWAGEN intends to build a revolutionary plant in the Basque region of Spain to test techniques for manufacturing the lowest-priced car in the world, the company's production head, Jose Ignacio Lopez de Arriortua, said yesterday.

The greenfield 'production technology laboratory' would develop manufacturing processes capable of making cars in well under the best Japanese times of 12 hours.

The Spanish project is thought to resemble closely what Mr Lopez had been negotiating when he was head of world purchasing for General Motors. Mr Lopez confirmed yesterday that it was disappointment at GM's refusal to support his plans for a 'dream lean- production factory' in the Basque country that was one of the main reasons that prompted his sudden departure in March for Volkswagen.

But Mr Lopez dismissed a threat by GM - which is already in several legal disputes with VW concerning Mr Lopez's departure - that it would block the building of any such plant by VW. 'We live in a free continent, where anyone can build a new plant if he wants to,' said Mr Lopez.

No decision had yet been taken on the location, but Mr Lopez confirmed that Volkswagen, through its subsidiary Seat, was negotiating with a group of Spanish investors who propose to build a full production plant for VW in Mr Lopez's home town of Amorebieta in the Basque country.

The 16,000 people in the unemployment-stricken town of Amorebieta, 12 miles east of Bilbao, were hopeful yesterday. One official said that 'for us it would be like winning the lottery'. But despite press conferences in Hanover and Madrid, Mr Lopez was short on hard facts. 'Maybe he'll swing it, maybe he won't. Maybe he's just planning to go into politics,' said one out- of-work electrician in Amorebieta.

Although the idea of 'the world's cheapest car' is thought to be the brainchild of Mr Lopez, he is said to have been leaking the line that the 'offer' has come from a consortium of Spanish firms and banks who would build and operate the factory for the first 10 years.

The Spanish consortium, made up of Banco Bilbao Vizcaya, Banco Central Hispano-Americano, the Bilbao Bizkaia Kutxa savings bank, the Iberdrola energy group and the Mondragon co-operative, is proposing to invest DM1bn ( pounds 414m) in a plant said to have a capacity of around 200,000 cars a year. It wants Volkswagen to pay a concessionary fee for an agreed number of cars a year, and finally purchase the plant after 10 years.

Ferdinand Piech, head of VW, said recently that the company wanted to build a people's car again, at the bottom of the price scale. The only way to do this would be in a revolutionary plant on a greenfield site, said Mr Lopez. 'A start could be made as soon as Volkswagen rids itself of existing burdens.'

Fighting heavy losses and over-capacity, VW is trying to streamline its activities. The proposal by outsiders to build a plant for VW offers the company a possible way out of its difficulties. VW spokesman, Lutz Schilling, said the idea would be first to develop a revolutionary manufacturing concept in the new plant, then later on to produce a new, small car. 'This means production is unlikely to start before 1995 at the earliest,' he said.

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