GM FLIPS ON FACTORY STORES: SMITH SAYS EXECS JUMPED THE GUN

DETROIT - General Motors Chairman Jack Smith has reversed GM's plan to own and operate hundreds of dealerships.

Smith, during an Oct. 26 interview, said the original plan was 'quite premature, and frankly what played out wasn't really where our head was ever at.'

That declaration came just four weeks after GM announced it would buy up to 770 of its dealerships, a plan that drew outrage from dealers and groans from Wall Street analysts.

The reversal is either a reaction to the negative reviews, or the result of a serious miscommunications between Smith and GM's North American sales group. Smith's explanation is that some GM executives got carried away before considering the automaker's long-term goals.

Dealers who met with Smith three weeks ago say that at the meeting Smith seemed surprised by the extent of the announced dealership acquisition plan.

What is clear now, according to Smith, is that any move GM makes into the retail arena will be temporary and involve dealers as investment partners.

'We never had any intentions of running factory stores,' Smith said. 'We've done that before and it wasn't a great success.'

GM spokesman Tom Kowaleski said Smith's statement reflects 'where we are today as we continue to refine the plan with dealer input.'

Some influential dealers took Smith's comments as a good sign, but were still leery of any attempts by GM and other automakers to own dealerships, even in partnership with independent dealers.

MIXED MESSAGE

For the past month, company officials have told a distinctly different story than the one offered by Smith.

It began on Sept. 27, when GM executives - including Group Vice President Roy Roberts and vice presidents John Middlebrook, Michael Grimaldi, and Darwin Clark - told a group of dealers the automaker planned to owned and operate dealerships through a new subsidiary, GM Retail Holdings.

In ensuing interviews, a press release and a letter to dealers, GM spelled out tentative plans to buy up to 10 percent of its 7,700 dealerships over the next 10 years. GM put Clark, a 30-year GM veteran, in charge of the project.

Industry analysts pegged the project's cost at between $2 billion and $4 billion.

Clark, in a Sept. 29 interview with Automotive News, said GM wanted to have sole ownership of the dealerships it bought, although GM would consider having dealers as partners in some cases. He said GM would own the dealerships for the long term.

Ron Zarrella, president of GM North America, smoothed over Wall Street's fears by telling analysts that investment in the project would be 'immaterial' during the next three years. Handline the dealer uproar proved more difficult.

On Oct. 13, Jim Willingham, chairman of the National Automobile Dealers Association, and other dealer leaders met with Smith in Detroit. When confronted with the extent of the GM Retail Holdings plan, Willingham and other dealers said Smith appeared surprised.

'I'm not sure he had a grasp of what the approved project was,' said Lou Kairys, a GM dealer who attended the meeting. Kairys is chairman of industry relations for NADA.

Smith told dealers GM would not operate factory stores and would slow down its GM Retail Holdings plan. But even after that, GM spokesman Terry Sullivan explained that the company still wanted to own dealerships, but not the traditional 'factory stores' that have failed in the past.

The project would continue.

NEW MISSION

Last week, however, Smith cleary gave the project a different mission.

Smith described GM Retail Holdings as an expansion of GM's existing dealer development program called Motors Holding. Under Motor Holding, GM buys dealerships and finds dealer candidates to run them. The dealer candidates eventually buy out GM.