By Bernie Woodall

DETROIT (Reuters) - Ford Motor Co has invitedLincoln dealers to a meeting in October to discuss its plans tobreathe new life into the lagging luxury brand at a criticaltime for many of its U.S. retailers.

The meeting is scheduled for Oct. 4 at Ford's Dearborn,Michigan, headquarters.

It will mark the first gathering of Lincoln dealers sinceFord, Lincoln and Mercury dealers all met in April 2008, justas the No. 2 U.S. automaker was beginning to win back marketshare under Chief Executive Alan Mulally.

The dealer meeting comes as Ford prepares to phase out itsMercury brand and negotiates with dealers on compensation fordropping the brand.

"It will be a Lincoln update ... giving dealers a look athow Ford will now work with Lincoln as an exclusive, luxurybrand," Ford spokesman Christian Bokich said.

Ford's discussions with dealers are expected to includeinvestment to enhance dealerships to lure the luxury buyer.

Bokich would not say whether investments to upgradeshowrooms would be part of the new plan for selling Lincolns.

Bokich said it is important that Lincoln dealers show that"the customer experience is better."

Mercury was created in 1939 by Edsel Ford, son of Ford'sfounder, Henry. It was intended to be a stepping stone betweenthe Ford brand and Lincoln, a strategy modeled after GeneralMotors Co's "brand ladder" between Chevy and Cadillac.

Of roughly 1,700 Mercury dealerships, most are paired withFord or Ford and Lincoln. There were 264 Lincoln-Mercurydealerships at the end of July.

Many of those dealers have depended on Mercury for the bulkof their sales and some see an uncertain future when they arereliant only on Lincoln.

Some Mercury dealers have been offered payouts of $300,000to $400,000 each by Ford in a bid to avoid a protracted legalbattle, a source familiar with the discussions has said.

Bokich declined to comment on compensation being offered toMercury franchise holders because negotiations were ongoing.

Ford will end production of Mercury vehicles within thenext two months, Bokich said.

LOOKING TO WOW LUXURY MARKETS

Lincoln was founded in 1917, and acquired by Ford in 1922.In the late 1990s, it became the centerpiece of Ford's luxuryportfolio which had also included the Jaguar, Aston Martin andVolvo brands.

Under Mulally, Ford has sold Jaguar, Aston Martin andVolvo. In June, the automaker announced that it would dropMercury, a storied brand associated with vehicles like theMercury Cougar.

That car -- launched in the 1960s -- led to the brand'sadvertising slogan, "The sign of the cat."

Bokich said the number of stand-alone Lincoln dealers wouldbe known after the Oct. 4 dealer meeting.

Ford will use the meeting to discuss upcoming products,including versions of the MKX crossover and a hybrid MKZ sedan,and plans to build Lincoln's image in luxury markets like NewYork, Los Angeles, and Miami, Bokich said.

Ford has been restructuring since 2006 based on a strategyof shedding niche brands and focusing on improvements for itsmass-market Ford vehicles under the Blue Oval logo.

Despite Ford's progress, Lincoln has failed to catch firewith younger consumers. Its U.S. market share slipped in 2010while GM's Cadillac and Daimler AG's Mercedes gainedground.

Last year, Ford also showed off a concept car for Lincolnbased on its small-car platform for the Focus which couldrepresent part of a bid to build the brand's image with youngerdrivers.

Toyota Motor Corp's Lexus is the U.S.luxury market leader. Lexus dealers sold more than 145,000vehicles from January through August 2010 compared with nearly56,000 sales of Lincolns.

Lexus sales were up 11 percent over the first eight monthsof the year versus 5 percent for Lincoln. (Reporting by Bernie Woodall; Additional reporting by KevinKrolicki, editing by Toni Reinhold and Matthew Lewis)