see the attached example configure.ac & Makefile.am.  it fails:
$ autoreconf -vfi
...
Makefile.am: error: object 'source.$(OBJEXT)' created both with libtool and without

if the Makefile.am line is enabled though:
lib_a_CFLAGS = $(AM_CFLAGS)

it works.  seems like we should be able to handle this better.
-mike