Story makes the admission as part of a wide-ranging chat on the latest episode of the KTM Summer Grill, viewable in the player below.
DJR now somewhat famously passed up its option on the rising star midway through 2024, electing instead to keep veteran Will Davison.
Allen was subsequently snapped up by Grove Racing and enjoyed a stellar rookie season that culminated in a Grand Final berth.
DJR has meanwhile cut short a two-year contract with Davison to install rookie Rylan Gray alongside star Brodie Kostecki for 2026.
Story said axing Davison in favour of getting onboard the Supercars youth movement was “one of the hardest decisions we’ve ever had to make”.
“We really agonised over that decision,” he said.
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“Quite frankly, we’ve made some mistakes through the course of the year.
“We made some mistakes that cost him genuine results, but on balance, we needed to make a decision that was head-over-heart as opposed to heart-over-head.
“And I’ve been guilty of making those before in the past.”
That appeared a clear reference to the decision to keep Davison over Allen for 2025.
While initially reluctant to back over that decision, Story later added that a rebuilding DJR in 2025 would not have brought the best from the youngster.
“If you want to reflect on the Kai Allen situation, I think there’s no way his results would have been reflected at our place,” he said.
“With everything we had going on with engine programs, homologation team stuff, and the transition that’s been taking place over the course of this year to Triple Eight, while still doing doing the job along the way…
“I think we were setting anyone coming into the team as a rookie, we were setting them up to fail, whereas that’s not the case now.
“We could put a structure around this young bloke (Gray), to give him every opportunity and ensure that not only can he be successful, but we can.”
Story also expressed disappointment that Davison opted for a clean break over the offer of staying on as a co-driver.
The two-time Bathurst 1000 winner instead elected to join Grove Racing, set to replace Garth Tander alongside reigning Great Race winner Matt Payne.
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