Cerberus to pay $7.4 billion for control of Chrysler

DETROIT — Chrysler's 80,000 workers may pay the price for Germany-based parent DaimlerChrysler's decision on Monday to turn over the keys of its U.S. car company to private equity firm Cerberus Capital Management for $7.4 billion.

Talks begin soon between the United Auto Workers and Detroit's car makers on a national contract, and analysts expect Cerberus, headed by former Treasury Secretary John Snow, to push for radical changes at its money-losing Chrysler, Jeep and Dodge operations.

The announcement sent shudders through much of Chrysler's work force, despite assurances from Chrysler CEO Tom LaSorda that there are no major plans under discussion with Cerberus to cut jobs beyond a previously announced restructuring plan.

That wasn't good enough for Canadian Auto Workers President Buzz Hargrove. He said he had "enormous concerns," noting that many private equity groups have a long-standing history of "job cuts as opposed to job creation."

The sale of 80.1 percent of Chrysler to Cerberus Capital Management LP unwinds the messy $36 billion marriage in 1998 that was set up to create the ultimate global automotive powerhouse.

Instead, the maker of the upscale Mercedes Benz brand of cars found itself, like competitors Ford and General Motors, battered by rising pension and retiree health costs in the United States as Toyota and other Asian manufacturers won the hearts of U.S. consumers with what many view as more reliable, fuel-efficient models.

DaimlerChrysler AG said it would keep a 19.1 percent stake in the renamed Chrysler Holdings LLC. The private company will be run by Cerberus, which said it would keep the present management in place.

So anxious was DaimlerChrysler to end the trans-Atlantic tie-up that it could be on the hook to pay as much as $650 million — in exchange for being absolved for $19 billion in retiree health care costs that will be the responsibility of the new Chrysler owners.

The $7.4 billion deal works this way: Cerberus will invest $5 billion in the new Chrysler's automotive operations, $1.05 billion in Chrysler's financial arm and pay $1.35 billion to DaimlerChrysler. But the German automaker agreed to absorb $1.6 billion in restructuring-related costs and loan the new company $400 million. Depending on whether the loan is repaid, its out-of-pocket costs could ultimately total $650 million.

Cerberus has steadily been building strength in the automobile business. It led a consortium that bought a majority stake last year in General Motors Acceptance Corp., the financial arm of GM, and planned to invest in ailing auto parts giant Delphi Corp.