WASHINGTON – The chief of staff for U.S. Rep. John Dingell (D-MI) promises a cap-and-trade system when lawmakers draft climate-change legislation this year and says the Congressman has no intention of stepping into negotiations between parts supplier American Axle Mfg. & Holdings Inc. and striking United Auto Workers union members.

A walkout by 3,650 UAW-represented employees entered its 12th week Monday. The two sides appear close to a new contract that would slash AAM’s workforce through buyouts and early retirements, and trim employee wages with the help of buydowns.

General Motors Corp., a key axle and driveline customer of AAM, is offering $200 million to help fund the buyouts, buydowns and early retirements.

But now AAM and the union are deadlocked over benefits and supplemental pay. The company says the benefits sought by the union are double that of its competitors, which are also UAW shops. It says few suppliers provide supplemental pay, which provides wages and benefits to laid-off workers.

“Both of these benefit programs are major cost drivers that must be addressed in order for AAM to attain a U.S. market competitive labor agreement for the original U.S. locations,” the supplier said in a statement released yesterday.

But the prolonged strike has halted production at AAM plants in Michigan and New York and forced GM to dramatically cut back its pickup and SUV production due to a parts shortage. Some analysts speculate the production losses could help propel the nation closer to a recession, but Dingell’s top aid says the Congressman’s hands are tied.

“It’s a difficult, dicey situation,” Dennis Fitzgibbons tells Ward’s after an address to the Society of Automotive Engineers’ Government/Industry meeting here. “We’d like to see a resolution soon, but Congress does not have a mechanism to deal with the strike.” The government has intervened in labor disputes before, such as the 1991 rail strike, but Fitzgibbons says it only takes such action when the country’s everyday business is at risk.

“The rail industry carries two-thirds on the nation’s goods,” he says. Government intervention also would violate constitutional law. “It steps on rights to association and the right to form a union,” he says.

Meanwhile, Fitzgibbons says lawmakers will include a cap-and-trade system to regulate carbon-dioxide emissions in climate-trade legislation. And it will not exclude auto makers, despite last year’s 40% increase in federal fuel-economy requirements that now call for a U.S. light-vehicle fleet to average 35 mpg (6.7 L/100 km) by 2020.

“There will be a cap-and-trade program,” says Fitzgibbons, a former DaimlerChrysler Corp. executive who now plays a key role in helping Dingell shape legislation. The Congressman serves as chairman of the Committee on Energy and Commerce, which will craft the final climate-change legislation.

“And it is our hope, it is our design, that CAFE would plug into that program so that the transportation sector would have the opportunity and the freedom, for instance, to trade (carbon credits) with utilities or other manufacturers,” Fitzgibbons says.

Cap-and-trade legislation would provide a way to reduce greenhouse gases on an industrial scale by capping total annual emissions and letting the market assign a monetary value to any shortfall through trading.

Credits can be exchanged between businesses or bought and sold in international markets at the prevailing market price. But Fitzgibbons also hints climate-change legislation could reshape CAFE.

“Some form of CAFE” will continue, he tells the conference. “There must be some way to measure carbon so you can trade (credits).”

But Fitzgibbons admits miles-per-gallon does not provide a useful metric for determining greenhouse-gas emissions and says during last year’s CAFE debate Dingell tried to include consideration for low-carbon fuels, such as ethanol.

“One car gets 40 mpg (5.9 L/100 km) running on gasoline and another car gets 25 mpg (9.4 L/100 km) on a carbon-neutral biofuel produced in the United States. Which is better from the standpoint of a full-range emissions, environmental consideration and national security? It’s not even close,” he says.

“We tried last year to come up with some kind of metric, a low-carbon-fuel standard, for instance, that would take into account not just what the car is doing but also what fuel is going into it. We couldn’t reach agreement in that context. We tried to address CAFE in the context of climate change, but we were left with guess what? CAFE.”

Fitzgibbons blames four forces – the newly perceived vulnerability of oil supplies to catastrophes such as hurricanes Rita and Katrina; concerns over national security, the nation’s reliance on imported oil; growth in oil demand from emerging countries such as China and India; and greater awareness over environmental issues such as climate change.

“Those all came together in the context of a democratically elected body,” he recalls. “It was hard to resist those forces.”

And, he adds, the auto sector represents an easy target for elected officials. “The auto industry is fairly concentrated in the Midwest, and people (in other states) don’t have an appreciation for their stake in the auto industry,” Fitzgibbons says.

The aide also says the industry is fighting a negative image fostered by its two decades of fierce opposition to tougher federal fuel-economy standards. “That takes a long time to overcome,” he says.

Fitzgibbons suggests the auto industry become more involved in the climate-change debate by letting product speak for itself.

“There is no substitute for putting clean, efficient vehicles on the road,” he says, noting Washington has taken notice of GM’s Chevrolet Volt extended-range electric vehicle and clean-diesel technology from Volkswagen AG.

“Product overcomes everything,” he says. “The first company to put a 40-mpg SUV on the road will run away with things.”

Fitzgibbons also addresses the controversy over food for fuel, a key topic of this year’s conference. Critics of grain-distilled ethanol have blamed its production for the recent run-up in domestic food prices, an allegation President Bush downplayed last week and engineers at the conference also questioned.

“We saw this coming, and I don’t think (it) is attributable entirely to competition for fuel,” he says. “But it’s a serious issue and the answer is cellulosic ethanol. That’s got to be the answer at some point.”

Fitzgibbons says Dingell favors one federal standard to govern fuel economy, which a proposed emissions standard from California and a dozen other states would pre-empt. The Environmental Protection Agency, which falls under authority of the Bush administration, ruled last year it, not individual states, would regulate tailpipe emissions. California will fight the ruling in court.

“There should be one federal standard, (and) we can thank George Bush for this train wreck. It has the potential for 51 different regulatory proceedings – an administrative nightmare that could provide no environmental benefit,” he says.

“We need to find some solution so we don’t create these problems,” Fitzgibbons adds. “And, frankly, there are a lot of people who aren’t friends of this industry who say, yes, this is a problem.

“We are actively engaged with these people, but don’t trick yourself into thinking that straight pre-emption is going to happen anytime soon.”

jamend@wardsauto.com