A worker walks through a row of new Chrysler 300s seen at the Pro Chrysler dealership in Thornton, Colorado, yesterday. Private equity firm Cerberus will buy a majority of DaimlerChrysler's struggling Chrysler Group for $7.4 billion, a fraction of the $36 billion deal that created the transatlantic car union nine years ago. - REUTERS

U.S. private equity firm Cerberus Capital Management is to buy a majority stake in DaimlerChrysler's ailing U.S. arm.

The German-U.S. firm will pay 5.5 billion euros (US$7.41billion) to buy 80.1 per cent - much less than the US$36 billion paid for Chrysler's 1998 merger with Daimler-Benz.

DaimlerChrysler shares closed 1.8 per cent higher on the German market.

The car maker will keep a 19.9 per cent stake in Chrysler, which will foot pension and health-care costs.

The deal was sealed after two months of talks between an array of potential bidders interested in buying the U.S. operation. It marks the reversal of a landmark deal in the automotive industry.

The future of Chrysler has been in the balance recently as it battled against huge losses that hit US$1.5 billion last year.

"With this transaction, we have created the right conditions for a new start for Chrysler and Daimler," said DaimlerChrysler Chairman and Chief Executive, Dieter Zetsche.

The acquisition comes nearly a decade after the US$36 billion merger of the company behind the Jeep and Dodge brands and the former DaimlerBenz AG.

Competition

Along with other U.S. car firms, Chrysler has suffered from falling profits and increased competition from Japanese car firms - slumping to fourth place in the U.S. light vehicle market behind Toyota.

Like its U.S. peers, the group has also embarked on a significant reorganisation plan, which includes 13,000 job cuts.

Tom LaSorda, president and chief executive of Chrysler Group, said the transaction would create a "stand-alone Chrysler that is financially stronger".

Founded in 1992, Cerberus specialises in snapping up ailing firms and reviving them by means of heavy cost cutting. It currently owns about 50 companies with combined revenues of more than US$60 billion.

Trade unions - who had been worried over job implications of any sale - welcomed the deal.

Ron Gettelfinger, president of the United Autoworkers (UAW), said: "The transaction with Cerberus is in the best interests of our UAW members, the Chrysler Group and Daimler."

The UAW has a four-year contract with Chrysler that comes to an end in September.

Analysts have said that making the firm profitable will demand that any new contract with the UAW includes lower costs, notably in health care. Experts also said the deal illustrates the continued interest of Cerberus in the auto industry.

In 2006, GM offloaded a majority share in its finance arm, General Motors Acceptance (GMAC), for some $14 billion to a group that was headed by Cerberus.

Analysts believe the private equity firm - which has been headed by former U.S. Treasury Secretary John Snow since last October - might be considering merging the GMAC outfit with Chrysler Financial.

The name Daimler AG will replace DaimlerChrysler, pending shareholders' approval.