The 4th U.S. Circuit Court of Appeals ruled today that Virginia may continue to restrict competition between automobile dealers selling the same make of car.

A unanimous three-judge appeals court held the constitutional prohibition against interference with interstate commerce leaves room for states to restrict competition between retailers, even if their regulations shift business from one manufacturer to another.

In this case, the court upheld Virginia's right to prohibit one Orange, Va., auto dealer from entering into competition with another dealer there in the sale of American Motors Corp. Jeep vehicles.

The car manufacturer had tried to assign a Jeep franchise to the AMC Early Inc. dealership in Orange, but the move met with objections from P.D. Waugh & Co., which operates a Jeep dealership two miles from Early.

Resorting to provisions of Virginia's Automobile Franchise Act, Waugh won a ruling from the state commissioner of motor vehicles that the Orange area would not support two Jeep dealers. The commissioner prohibited Jeep sales by Early.

When AMC and Early challenged the action in federal court, U.S. District Court Judge Robert R. Marhige Jr. in Richmond ruled that the Virginia law imposes unconstitutional restraints on interstate commerce by prohibiting sales by AMC to Early.

Since the Merhige ruling, however, the U.S. Supreme Court has upheld a similar California law restricting auto dealer competition, and a Maryland law banning retail gas sales by oil refining companies. The appeals court cited both high court decisions in overturning Merhige.

In the Maryland case, the appeals court noted, the high court said a probable shifting of sales from one refiner to another as a result of the Maryland law would not amount to an interference with interstate commerce. Although the Virginia law in this case restricts Jeep competition in Orange, the appeals court said, it would not restrict sales of similar vehicles in the area.