DETROIT – Cerberus Capital Management, a private equity firm that already has several ties to the auto industry, emerged over the weekend as the frontrunner to buy the Chrysler Group, the Detroit Free Press has learned.

If Cerberus is named the final bidder, which could happen as soon as Monday, it would be a spectacular triumph for a private equity firm to take control of one of Detroit’s automakers and a giant blow to Canadian auto supplier Magna International Inc.

It also could mark the beginning of an even more difficult time for organized labor, which has been vocal about its opposition to private equity firms getting involved in the auto business and with Chrysler, specifically.

The likely next steps would involve lengthy due diligence, as Cerberus further investigates Chrysler’s inner workings and could get tangled up in UAW negotiations this summer. Cerberus’s effort to buy a leading stake in Delphi Corp., for instance, has been put on hold by an inability to reach a lower-cost labor agreement with the union.

Magna, the world’s third-largest auto supplier, had enjoyed the perceived frontrunner position in recent weeks.

, locking up endorsements of crucial labor leaders who could have the influence to make such a deal work.

People close to the situation told the Free Press an announcement will likely be made soon – possibly as early as Monday.

The ace in Cerberus’ hand appears to have been the hiring of former Chrysler Chief Operating Officer Wolfgang Bernhard as an adviser to help the deal.

Bernhard, who helped orchestrate the previous turnaround plan at Chrysler, has been seen around Chrysler’s headquarters in Auburn Hills, Mich., and seemed to be favored by Chrysler executives over other bidders.

Named after the mythological three-headed dog that guards the gates of Hades, Cerberus is a New York private equity fund whose companies around the world generate $60 billion in revenues annually.

It holds a 51 percent stake in GMAC, General Motor Corp.’s financing arm, among its holdings, which also include banks, mortgage companies, property managers, Alamo and National rental car companies, more than 250 Burger King restaurants, the Fila shoe brand, Blue Bird school buses and the Rafaella clothing brand.

A sale of Chrysler to Cerberus would likely be felt by the automaker’s workers, experts predict.

“For Chrysler’s sake and for the sake of the state of Michigan, it’s not something I would like to see happen,” said industry analyst Erich Merkle of IRN Inc. “Private equity groups are pretty short term.”

Union leaders and industry analysts have predicted a successful private equity buyer would likely cut jobs and possibly sell off Chrysler assets.

The Chrysler Group, which lost $680 million last year, is undergoing its second turnaround plan of the past decade, which involves cutting 13,000 jobs over the next three years.

In March, Lehman Brothers analyst Brian Johnson said that number could grow to 25,000 if a private equity firm buys Chrysler.

Experts have said that any deal is likely to involve a bidder wanting health care concessions from the UAW.

It’s been estimated that the U.S. division has nearly $20 billion in underfunded pension and health care liabilities.

Cerberus officials have not commented throughout the process, and a spokesman declined to comment Sunday. DaimlerChrysler officials also declined to comment.


The Wall Street Journal Online reported over the weekend that the buyer will take the liabilities and that the price for Chrysler could be substantial.

The Financial Times of London reported Sunday that the issue will be brought up at the DaimlerChrysler supervisory board meeting early this week and that it is not yet a done deal, citing unnamed sources that said Magna could be back in the running.

A person familiar with the talks told the Detroit Free Press that Magna had been in recent talks with DaimlerChrysler officials.

Nearly two weeks ago, serious bidders were expected to submit second- round offers for Chrysler. Magna, Cerberus and private equity firm Blackstone Group were all believed to be in the hunt.

Last week a German auto industry report said Magna and its investment partner, Onex Corp., were the only serious bidder but by the end of the week Magna’s future with Chrysler took on new questions.

The supplier announced a new $1.5- billion Russian investor – Oleg Deripaska – who the United States has banned from traveling in the country because of questions about ties to organized crime. Deripaska has denied the accusation.

On Friday, Michigan Gov. Jennifer Granholm traveled to Magna’s headquarters near Toronto to meet with Magna Chairman Frank Stronach and emerged from the meeting saying Magna would be an excellent buyer for Chrysler.

In February, DaimlerChrysler Chief Executive Dieter Zetsche indicated that Chrysler might be sold. By April, Zetsche announced that DaimlerChrysler had been in talks with interested parties.

Zetsche also said that if Chrysler is sold, he did not want all ties between Chrysler and Mercedes cut, indicating Daimler could keep a stake in the Auburn Hills automaker that merged with Daimler-Benz AG nine years ago at a cost of about $36 billion.

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(c) 2007, Detroit Free Press.

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AP-NY-05-13-07 2103EDT