Family and Racism

We were in the car, a few miles down the road from Friendly's, about to stop for dinner on the way to dropping me at home.  My stepfather in back as a courtesy to my motion sickness, my mom driving, and me in the passenger seat. It was the start of rush hour and we narrowly avoided a collision with two other vehicles.  My mother and I exclaimed on the terrible driving and relief of safety when I heard from the back seat: "Other diver must have been a niggro".
"Really?" Me, shocked.
"What do you mean?"
"Did... did you really just say that?  That was really racist."
"Negro isn't racist, they say it."
"I don't care if they say it.  It's still racist.  And what do you mean they?  As far as I've seen, most black people don't like that word."
"Well are you sure they're black?  Are they African American?" asked my mom.
"What does that even matter?"

I couldn't believe I was having this conversation with my parents of all people. It didn't end there, and it did get uglier.  Eventually it was my mom that decided to make it into a personal attack.
"Are you ever wrong?  And do you admit it when you are?"
It was the way she said it.  As if I was purposefully instigating a fight so I could arrogantly assert my "rightness" - instead of trying to speak up to my parents on something that makes me incredibly uncomfortable.

Somewhere in there, my stepfather apologized and asked us to stop arguing.  I said thank you, but I'm trying to discuss this with my mom.  She tried to turn it into me being ungrateful for her care, and I realized that she really must think I'm that stuck up to be able to say things that way.  I wondered how long she'd thought that, and I asked her to just take me home.  She said they were going to dinner, and I could either come in or wait.
I didn't say anything.  What could I say that wouldn't make it worse?
When she parked the car, I got out and walked out of the parking lot and to the plaza across the street, and started calling friends to find a ride home.

I've always been really close with my mom.  She's always had very liberal and democratic views.  Hell, that's how I ended up the way I am.  She's only been with my stepdad for about six years, and he's always been republican and a little off-color.  But it wasn't until the both of them started trying to justify using the word "negro" that I realized that they just refused to listen that times might have changed since back in the day.  I honestly don't know how to deal with this, especially since my mom seems to have been holding me in veiled contempt for who-knows-how-long.

A friend tells me that benign or ignorance based racism  is a problem with baby boomers.  I just have a problem of my own.  Is there a way for my relationship with my mother to be repaired?  Or will it just devolve to nominal communication and uncomfortable holidays?