GM said the move is a response to the unprecedented change in the auto-retailing industry, including the effects of the Internet and the rise of consolidators such as AutoNation Inc.

"It is critical to GM's future competitiveness that we improve our market performance where we lag, enhance our revenues, understand our customers better and look for ways to reduce distribution costs and improve the customer's buying experience," said Roy Roberts, GM's North American sales chief. But GM dealers were skeptical of the No.1 auto maker's assurances that the company-owned stores would compete on a level playing field with independent operators and vowed to fight the initiative.

Tremendous problems

"It creates a tremendous problem,"said James Willingham, chairman of the National Automobile Dealers Association, which represents nearly all the franchised dealers in the country. The group has called on GM to "rethink this flawed initiative," he said.

Some of the fiercest skirmishes over the issue are likely to come in state legislatures, where dealers already have been pushing to stiffen franchise-law restrictions on manufacturer ownership in the face of smaller-scale efforts such as GM's by other auto makers. "The idea that GM will now compete at the retail level reaffirms the need for strong state franchise laws to protect dealers and consumers," Willingham said.

"We'll be heading to those state capitols," he added, noting that the dealers association is likely to change its policy of staying out of state-level lobbying and enter the fray on this issue.

Darwin Clark, the GM vice-president named to run the new venture, said he hopes to be able to convince skeptics that GM's participation will benefit all GM dealers by building thecompany's brands and providing a test bed for new retailing techniques that will be available to anyone selling GM vehicles.

"I think we're going to be able to create an environment here that we're going to be able to show dealers that we're not the enemy," he said. GM-owned dealers will sell only GM products and will target customers from rival makers, an area where the company has been weak.

Clark declined to comment on how much GM is investing or how much revenue the new operation might generate. But he said GM is targeting the top 130 retail markets in the country and plans to buy 5 per cent to 10 per cent of the dealerships in those regions over the next decade. By the end of that period, he said, GM-owned dealers could account for "anywhere from 12 per cent to 15 per cent" of total sales volume. GM will buy only from dealers who want to sell, he said.

GM hopes to slash the costs of selling and distributing cars at the dealerships it owns, Clark said, yielding wider profit margins than it seesfrom many of its current businesses. He said GM-owned dealers won't be factory outlets or discounters. The latest announcement comes just as GM was trying to patch up relations with its dealers, which suffered early this year from a wrenching reorganisation of GM's field sales force and persistent computer problems that dealers said left them without popular models. A major issue for GM is that the company has far more dealers than it needs to serve its diminished share of the US market. GM's dealer network, established in the 1950s and 1960s when the company owned close to half the US vehicle market, is weighed down with stores that aren't in the right locations or simply aren't needed at all.

More difficult

GM's announcement comes as Ford Motor co. pulls back on its once-ambitious plans to consolidate its dealers. Last year, Ford angered dealers with plans to take a minority stake in dealerships. So far, Ford has consolidated just a few dozen dealers in five midsize cities, including Tulsa,Oklahoma, and Salt Lake City, under an umbrella retail brand, Ford Auto Collection.

Integrating some of these operations has proved more difficult that Ford initially hoped, while efforts in other states have run into tightened franchise laws.

Analysts say the auto makers are trying to revamp a franchise system that may actually be impossible to overhaul. "It's much more difficult to modify an existing system than starting with a clean slate," says Chief DeNove, director of consulting operations at JD Power & Associates. "If an auto maker could start over now, none of them would create a franchise system that looks like the existing one."

Fara Warner contributed to this article (The Asian Wall Street Journal)