* CEO to retire in Nov, replaced by European pallet chief

* To upgrade wooden pallets, better returns than plastic

* Shares fall 2.8 pct (Adds details)

MELBOURNE, Oct 6 (Reuters) - Brambles Ltd (BXB.AX), the world's top pallet supplier, plans to spend $110 million over three years to improve its wooden pallets to attract U.S. customers and to combat a rival touting the benefits of plastic.

The Australian firm also said on Tuesday that its chief executive, Mike Ihlein, would retire in November, and would be replaced by Tom Gorman, currently head of the European arm of its CHEP pallet business.

Brambles shares fell 2.8 percent to A$7.44 after the announcement, against a 0.6 percent rise in the broader market.

The pallet upgrade follows a review of its CHEP USA business, which operates in a $10 billion market serving manufacturers, from car parts makers to food giants like Nestle (NESN.VX).

Brambles' U.S. rival, Intelligent Global Pooling Systems, led by a former CHEP executive and with former Brambles CEO John Fletcher on its board, has been luring customers with plastic pallets with embedded tracking devices.

It says the plastic pallets are cheaper to transport, more durable and easier and safer to handle as they are 30 percent lighter than wooden pallets.

Brambles sees wood as the way to go, as it is much cheaper than plastic. It developed its sturdier, premium pallets after consulting customers and testing its pooling service against 12 other alternatives.

Ihlein decided to retire after nearly six years with the company, in which time he was chief financial officer before becoming CEO in 2007 leading a turnaround of the business.

Gorman joined Brambles in 2008 to head the CHEP European business after a long career at Ford Australia (F.N), where he held the top job for nearly four years.

Brambles was hit by the slump in the auto manufacturing business in the year to June 30, reporting a 33 percent slide in net profit. (Reporting by Sonali Paul; Editing by Jonathan Standing)