Chrysler and Daimler part in £3.7bn deal

DAIMLERCHRYSLER has announced the knock-down 5.5 billion (£3.7bn) sale of its loss-making Chrysler operation to a US private equity group.

The deal with Cerberus Capital Management reverses the merger of ten years ago that saw the US and German car giants join forces. Daimler originally paid 18bn for Chrysler.

Daimler is now set to drop the Chrysler name. However, Daimler will retain a 19.9 per cent stake in Chrysler under the deal, which is due to be completed by the third quarter. Cerberus, meanwhile, will also take on Chrysler's massive $18bn pension liabilities.

Of the 5.5bn cash, Daimler will retain 1bn, while the rest will be injected into the newly formed Chrysler companies. But Daimler will have to spend 1.2bn on its 13,000 job cut and restructuring plan before the deal completes and will have to loan Chrysler a further 300m. As a result, it will actually lose 500m on the deal.

The sale marks the first time that one of the big three Detroit carmakers is not owned by an industrial player. It also marks the conclusion of a fierce three-way battle against Blackstone, the private equity firm, and Magna International, a Canadian car-parts maker.

Cerberus, which counts former Ford and Chrysler executives among its operations team, recently acquired GMAC Financial Services, the former General Motors finance unit.

Chrysler lost $1.5bn in 2006 and is undergoing a recovery plan in Canada and the US and paring back production. DaimlerChrysler announced in February that it was considering all options for the Chrysler unit, which was taken to mean it was being put up for sale.

Like General Motors and Ford, Chrysler has suffered from the rising cost of petrol, causing consumers to switch from SUVs to smaller vehicles.