German automaker Daimler has stepped closer to completely extracting itself from its ill-fated investment in Chrysler, the company said Monday.

Daimler said it reached a deal with Chrysler, Chrysler's controlling shareholder, Cerberus Capital, and the U.S. government's Pension Benefit Guaranty Corporation "covering issues still pending between the parties."

Under the deal, Daimler will:

• Forgive loans Chrysler owes it, and have its 19.9 per cent equity stake in Chrysler redeemed.
• Pay $200 million US a year into Chrysler’s pension plans for the next two years, but get out from under a $1-billion loan guarantee to the pension guaranty company.

The pension guarantee will be reduced to $200 million, Daimler said.

It had already written off its Chrysler shareholding. As of end of of 2007, Chrysler owed Daimler $400 million.

The deal will cost Daimler $700 million, the company said.

Daimler sold 80.1 per cent of Chrysler to New York-based Cerberus in 2007, ending an unsuccessful nine-year joint business.