Ford Motor Co. will challenge a Texas law that bars auto manufacturers from selling used cars on the Internet in a case that pits old-time statehouse politics against the new economy.

The issue came to a head last month when the Texas Motor Vehicle Division warned several Ford and Lincoln-Mercury dealers participating in the automaker's Pre-Owned Showroom program (www.fordpreowned.com) that they risked daily fines of $10,000 and a possible loss of license if they continued to take part in the Internet sales effort.

Department officials cited a new amendment to the franchise laws governing auto dealers in the state that bars any auto manufacturer from selling new or used cars directly to consumers. In other words, the law prohibits the factory from selling cars to consumers as a dealer does.

Texas has a reputation for having some of the toughest dealer-protection laws in the nation.

Last week, U.S. District Judge Sam Sparks in Austin denied a company request for a temporary restraining order to halt enforcement of the new law. Ford yesterday filed a motion asking Sparks to rethink his ruling.

In the meantime, a hearing is scheduled for early next month with the Motor Vehicle Division, which will mark the start of what could be a long-term legal challenge to the law.

Although the cases date back more than a month, Ford yesterday mounted a public relations blitz against the law and the Motor Vehicle Division. The company also denied that the Pre-Owned Showroom program involved direct sales to consumers.

The Internet sales program, which Ford began more than a year ago, is offered in selected states. It is not available in the Washington area.

Under the program, Ford buys one- and two-year-old cars in special dealer auctions, runs them through a multi-point inspection and then offers them at a set price through participating Ford or Lincoln-Mercury dealers.

Customers place their order and the cars are shipped from the nearest auction site, with delivery guaranteed within 24 hours. The customer completes the transaction through the participating dealer. If the customer doesn't like the car, he or she can refuse it and Ford will either buy it back from the dealer or sell it to the dealer for traditional sale on the used-car lot. Ford holds the title to the cars until they are shipped to the dealer.

Because the dealer handles the final sales transaction, Ford insists it is not the seller and therefore the Showroom program is not a violation of the new dealer law.

"They're trying to say that just because it's on the Internet it overrules state laws," said Carol Kent, director of enforcement for the Motor Vehicle Division. She said the law is quite specific: "A factory may not own or operate a dealership or act in the capacity of a dealer."

She said the state had met with Ford earlier this year after the new law was passed with suggestions on how the company might change its program to comply. One suggestion was to simply take the price off the Internet and leave that up to the dealer. Ford declined.

Ford Division President Jim O'Connor told a telephone news conference yesterday that the company has no intention of abandoning traditional dealers in pursuit of Internet sales. "The e-commerce strategy for the Ford Division will be to work through our dealers," he said.

"We need to help our dealers grow in the Internet business, and we need to help them grow in the traditional business. We need to do both," O'Connor said.

Without making a direct reference to the Texas matter, O'Connor said that dealer resistance to Ford's initial Internet efforts, including Ford's strategy to own auto retail outlets, stems from the company's attempts to move too fast. He said Ford will slow, but not abandon, those efforts.

CAPTION: Ford Division President Jim O'Connor, showing the Explorer Sport Trac, did not comment on the case but said company's future lies with its dealers.