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A power struggle is developing inside the Democrat party between West coast environmentalists and the union-sponsored representatives of the party's industrial heartland, in a battle that will affect the future of the cash-strapped US car industry and shape President-elect Barack Obama's efforts to tackle global warming.

The party's leadership yesterday slapped down a $25bn compromise that would have bailed out the near-bankrupt automakers, demanding instead that Detroit's Big Three firms – General Motors, Ford and Chrysler – come up with a plan to restore their fortunes.

At the same time, a long-time supporter of green causes, California representative Henry Waxman, unseated one of the party's grandees to take control of the powerful House energy and commerce committee. John Dingell, who represents Michigan, the home state of the car industry, had been the committee's top Democrat for 27 years but clashed with younger members who wanted to push for tougher environmental policies.

Detroit's automakers have been pleading for government cash since sales collapsed last month. The credit crisis threatens to be the final straw for an industry in decline since the Fifties.

The Democrat leadership had been pushing for an emergency loan of $25bn to be arranged out of the $700bn bail-out of the US financial industry, but that deal was opposed by Republicans. Shares in GM and Ford leapt yesterday when it emerged Michigan's Democrat senator Carl Levin had agreed a cross-party compromise that unlocked the original $25bn, but the Democrat leadership beat him to television cameras. California representative Nancy Pelosi, speaker of the House, declared there was no support for handing Detroit new money unless they set out a "road to viability".