Canadian auto parts giant Magna International has lost its bid to buy Chrysler Group from its German parent company DaimlerChrysler.

DaimlerChrysler AG said Monday it will sell more than 80 per cent of its money-losing Chrysler Group to private equity firm Cerberus Capital Management LP for $7.4 billion US, unwinding its nearly decade-old deal to merge the U.S. brand with Mercedes-Benz.

The German-American automaker said in a statement that an affiliate of Cerberus will acquire 80.1 percent in the new Chrysler Holding LLC while DaimlerChrysler will keep a 19.9 percent stake.

It said that obligations for pensions and health care costs would be retained by the Chrysler companies.

Shareholders will decide on changing the company's name to Daimler AG.

"We're confident that we've found the solution that will create the greatest overall value — both for Daimler and Chrysler," said DaimlerChrysler chief executive Dieter Zetsche. "With this transaction, we have created the right conditions for a new start for Chrysler and Daimler."

He added that the two companies would continue to work together in the coming months and years.

DaimlerChrysler said the deal is likely to be complete by the third quarter and that it would reduce its overall profit by some $4.05 billion US to $5.39 billion US for 2007.

Hargrove 'incredibly worried'

The decision has worried unions in the U.S., but United Autoworkers president Ron Gettelfinger called it the best choice.

"The transaction with Cerberus is in the best interests of our UAW members, the Chrysler Group and Daimler. We are pleased that this decision has been made," he said.

Canadian Auto Workers head Buzz Hargrove, who learned of the sale in a pre-dawn phone call, said he's concerned about job security for Chrysler's 10,000 Canadian employees.

"I'm incredibly worried a private equity firm has majority control of the company," he said. "The decisions will be made by private equity executives, not people who have been traditionally in the industry."

Hargrove said he'll learn more about the deal Tuesday morning when he meets representatives of Chrysler and Cerberus in Detroit.

Speaking at a news conference Monday in Stuttgart, Cerberus chairman John W. Snow said his company has a good record of working with unions.

"We respect the role of organized labour," he said. "A successful Chrysler creates a good opportunity for employees."

Snow said the deal was a sign of faith in Chrysler, an iconic American brand and third-largest carmaker behind General Motors Co. and Ford Motor Co.

"We welcome Chrysler into the Cerberus family of companies and believe Cerberus will be a good home for Chrysler," he said in a statement. "Most importantly, we believe in Chrysler."

Shareholders were excited about the news, sending the company's stock up more than 6 percent before it fell back to $85.99, still up more than 3.6 per cent.

Lost $1.5 billion in 2006

The sale comes after nearly two months of study and negotiations by several companies interested in buying DaimlerChrysler's troubled U.S. operations.

The deal is a stunning reversal of the $36 billion US merger of Chrysler with Daimler-Benz AG in 1998 that tried to set the mould for global automotive manufacturers. Despite the pledges and promises of synergies and advancement, the two companies never truly melded into one.

The company had announced Feb. 14 that all options were open for Chrysler, which lost $1.5 billion US last year and is undergoing a restructuring plan that will eventually shed 13,000 jobs.

Last year, General Motors Corp. sold a majority stake in its General Motors Acceptance Corp. financing arm to a consortium of investors led by Cerberus for about $14 billion US. Analysts have said buying a big stake in Chrysler could be attractive to Cerberus because it could combine GMAC operations with Chrysler Financial.

In December, Cerberus was part of a consortium of investors that said it would invest $3.4 billion US in the struggling auto parts giant Delphi Corp. in exchange for new shares of Delphi stock as it emerged from Chapter 11 bankruptcy protection.

On its website, Cerberus said the companies in which it has a controlling or significant minority stakes generate over $60 billion US in annual revenues. Its worldwide investments include businesses involved in aerospace and military, autos, building products, retailing, financial services, health care, distribution, paper and packaging, real estate, telecommunications, transportation and travel.

Billionaire investor Kirk Kerkorian, who tried to take control of Chrysler in the 1990s, also has said he would make a bid, but it was apparently spurned.