FRANKFURT, Germany (AP) — German-based DaimlerChrysler said yesterday it will sell almost all of money-losing Chrysler to a private equity firm for $7.4 billion, backing out of a troubled 1998 takeover aimed at creating a global automotive powerhouse.Eighty percent of Chrysler Group, burdened by high labour costs and declining market share in the United States, will be sold to Cerberus Capital Management LP, a New York private equity firm.

The impact on Chrysler's 80,000 workers remained unclear, but Cerberus chairman John Snow, a former US treasury secretary, said the company plans to keep Chrysler's management and work with unions to return the struggling automaker to profitability.

Car buyers have little to fear from the transaction because warranties and spare parts requirements must be honoured by law, one industry analyst said.

"From a consumer perspective, in the practical sense, there's no real downside. I think consumers are pretty well protected," said Jeremy Anwyl, president of the Edmunds.com automotive web site. "I can't see a scenario where consumers are going to be left exposed on the thing."

Consumers may benefit from the deal because Chrysler will have more money to invest in its products, he said.

In the deal, announced yesterday morning, DaimlerChrysler AG will sell 80.1 percent of the money-losing Chrysler to Cerberus. It's a stunning reversal of the $36 billion takeover of the Jeep and Dodge maker by Daimler Benz AG nine years ago.

DaimlerChrysler, which would become Daimler AG if the name gains board approval, would retain 19.1 percent ownership in Chrysler. Cerberus would hold a majority of a new company that would run Chrysler, Chrysler Holding LLC.

It's a huge risk for Cerberus because it has agreed to take on Chrysler's estimated $19 billion in retiree health care costs. Chrysler's US pension obligation is overfunded at present, the company has said.

Snow told a news conference in Germany that the New York-based private equity firm believes in Chrysler and wants to see it recover.

"We think at this particular point in Chrysler's history, there may be opportunities in the private world, the world of private investment, that create more room for growth and expansion, that allow management to focus with greater intensity on the day-to-day business of producing better cars," Snow said.

Although Chrysler would become a private company, Daimler's shares would continue to be traded on US and German stock exchanges.

In midday trading, DaimlerChrysler's shares rose $1.22, or 1.49 percent, to $83.22. They have traded in a 52-week range of $45.98 to $84.90.

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 plans to invest in ailing auto parts giant Delphi.

The prospect of a sale to a private equity firm had worried unions in the US and Canada because of the firms' tendency to slash costs and jobs.

Daimler will continue to work with Chrysler on drive systems, purchasing, sales and financial services outside North America. But it was clear that DaimlerChrysler and its chief executive Dieter Zetsche, who tried to prop up sales in the US with his "Dr. Z" television commercials, had lost confidence that a combined Chrysler and Daimler could be a world-wide automotive leader.

"We determined that DaimlerChrysler, as currently structured, would not provide the best" framework, Zetsche told reporters in Stuttgart.

Analysts said Cerberus' entry into auto-making could be a plus for Chrysler's US-based competitors, Ford Motor Co. and General Motors Corp., because Cerberus is more likely to be a catalyst for change at the bargaining table with the United Auto Workers union.

Formal talks between the Detroit Three and the UAW on a new national contract are set to begin in July, with the master contract expiring in September. All three have said they need lower labour costs to compete in a global automotive market, mainly with Asian manufacturers.

"The threat of an independent Chrysler majority owned by Cerberus at the negotiating table is likely to bring about broader change than having DaimlerChrysler AG negotiating with the union again," Morgan Stanley analyst Jonathan Steinmetz said in a note to investors.

With Cerberus at the bargaining table, it's unlikely that the union would remain unwilling to give Chrysler the same health care concessions that it gave Ford and GM, Steinmetz said.

"Cerberus brings a fresh perspective and likely a stronger backbone to union negotiations," Lehman Brothers analyst Brian Johnson said in a note.

Snow said at the news conference that he and his company respected organised labour.

"I think Cerberus has a good record of working successfully with companies that are organised and we respect the role of organised labour and we greatly appreciate the support the UAW has given to this transaction, the statement that this is in the best interest of Chrysler ... tells us a lot," he said.

The UAW's endorsement of the transaction was a shift from earlier this year, when UAW President Ron Gettelfinger warned that a private equity buyer would "strip and flip" the company by selling it off in pieces.

Gettelfinger, speaking on WJR-AM in Detroit, said he made a last-minute pitch to Zetsche to keep Chrysler with Daimler over the weekend, but when that failed, he decided to embrace the Cerberus purchase.

"The decision has been made, we're supportive of it," Gettelfinger said. "We're going to close that past chapter. We're going to move forward."

Canadian Auto Workers President Buzz Hargrove said he was assured that the collective bargaining agreement with Chrysler would be honoured and that no jobs would be eliminated.

The Cerberus deal, which likely is to be completed by the third quarter, probably will reduce Daimler's overall profit by as much as $5.4 billion for 2007, the company said. Private equity firms typically use money provided by pension funds and hedge funds and wealthy private investors to acquire public companies or parts of companies and take them private, often to reorganise and later sell at a profit.

But Snow said Cerberus would focus on longer-term earnings.

"We don't think about the next quarter. We don't think about what analysts have to say about us. We care very much about producing long-term results for investors," he said.

Analysts said last week that Magna International Inc. was the likely leading bidder for Chrysler. Billionaire investor Kirk Kerkorian, who tried to take control of Chrysler in the 1990s, also has said he would make a bid.

Zetsche announced on February 14 that all options were open for Chrysler, which lost $1.5 billion last year and is undergoing a restructuring plan that will eventually shed 13,000 jobs.

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