March 14 (Bloomberg) -- Magna International Inc., Cerberus Capital Management LLC and a team led by Blackstone Group and Centerbridge Partners LP are front-runners to buy DaimlerChrysler AG's Chrysler unit, two people familiar with the talks said.

Magna, a Canadian auto-parts manufacturer, and the leveraged-buyout firms have started detailed reviews of the automaker's finances and product plans. DaimlerChrysler executives aim to meet within the next few weeks to pick a favored bidder for the U.S. division, which lost $1.5 billion last year, the people said.

Dieter Zetsche, chief executive officer of Stuttgart, Germany-based DaimlerChrysler, has put ``all options on the table'' for the unit, which is burdened by employee-pension costs and slack demand for trucks and sport-utility vehicles. Analysts have valued Chrysler at $3 billion to $5 billion. Daimler paid $35 billion for the Auburn Hills, Michigan-based company in 1998.

``We're talking about a turnaround situation, and the attraction to a buyer is that it's still a strong brand name and has a lot of opportunity for cost savings,'' said Craig Hutson, a senior bond analyst at Gimme Credit Publications Inc. in Chicago. ``You hope you're buying it at a low point in its cycle.''

The contenders are in talks to buy all of Chrysler, said the people, who asked not to be identified because the negotiations are private. There is no guarantee they will make offers, Hutson said.

Credit-Default Swaps

The U.S. shares of DaimlerChrysler rose 20 cents to $69.19 at 4:01 p.m. in New York Stock Exchange composite trading. The shares have risen 20 percent in the past 12 months.

Credit-default swaps based on 10 million euros of Daimler debt rose 2,000 euros to 42,500 euros, according to Deutsche Bank AG. Credit-default swaps are based on corporate bonds and are used to speculate on a company's ability to repay debt. An increase indicates a worsening in credit quality.

Chrysler spokesman Mike Aberlich declined to comment. ``This is a matter we are letting unfold privately.''

Blackstone spokesman John Ford and Peter Duda, a Cerberus spokesman, declined to comment. Mark Gallogly, cofounder of Centerbridge Partners, didn't return a phone call seeking comment. The three firms are based in New York.

Magna wants to have ``a full understanding'' of Chrysler's future, Tracy Fuerst, a spokeswoman for the Aurora, Ontario- based company, said in a statement to Bloomberg. ``Any preliminary discussions which Magna has had, or may have, with Chrysler regarding potential alternatives would be conducted on a strictly confidential basis.''

Taking on Union

Private-equity owners might be more aggressive than Zetsche, whose German operations are heavily unionized, in slashing Chrysler's costs by renegotiating labor contracts and closing plants. When turnaround specialist Steve Miller took over as Delphi Corp.'s CEO in 2005, he vowed to take the auto- parts maker's U.S. operation into bankruptcy if he wasn't given union concessions and financial aid from GM. The unions and GM balked, and Miller filed for bankruptcy in October 2005.

Zetsche, under pressure from some investors to unravel the merger that formed DaimlerChrysler, said Feb. 14 that he would also consider spinning off Chrysler or keeping the unit.

General Motors, the world's largest carmaker, is discussing several options with DaimlerChrysler, including joint development of vehicles and an outright purchase, people with knowledge of the talks said last month. Rick Wagoner, CEO of Detroit-based GM, wouldn't comment today on Chrysler.

Others Not Interested

Volkswagen AG, Ford, and Renault SA and its partner Nissan Motor Co. said last month they wouldn't buy Chrysler. Toyota Motor Corp. said March 5 that it wouldn't pursue a deal, though it would review an option to conduct joint research. PSA Peugeot Citroen hasn't expressed any interest in Chrysler.

In an amendment to the agenda for DaimlerChrysler's April 4 annual meeting, shareholders Ekkehard Wenger and Leonhard Knoll urged this month that the company's name revert to Daimler-Benz AG. Ron Gettelfinger, president of the United Auto Workers union, said yesterday that DaimlerChrysler should keep the U.S. unit.

Magna, Canada's biggest maker of auto parts, builds DaimlerChrysler's Mercedes, Jeep and Chrysler models at a plant in Graz, Austria. Canadian Auto Workers President Buzz Hargrove said he met with the company's chairman, Frank Stronach, twice last month to discuss ``the Magna-DaimlerChrysler situation.'' He declined to reveal details of those conversations.

Auto Experience

Buying Chrysler would add design and sales units that could allow Magna to expand beyond its current role as a contract assembler.

Representatives from Cerberus and Blackstone, two of the world's largest private-equity firms, have visited Chrysler's Auburn Hills headquarters to explore the possible bid, people familiar with the matter said last week.

Cerberus last year led a group that bought a 51 percent stake in GM's financial-services unit, now called GMAC LLC. Cerberus has hired Wolfgang Bernhard, who ran Volkswagen's namesake brand, as an adviser, the Financial Times Deutschland reported today, citing unidentified sources. Bernhard had a seven-year management stint at DaimlerChrysler before moving to Volkswagen AG.

Cerberus's spokesman Duda had no comment on the report.

Cerberus is also negotiating an accord under which it would lead four other financial companies in a $3.4 billion investment in Delphi, the biggest U.S. auto-parts maker. The firm's agreement to not walk away from the deal ends tomorrow. The sticking points are wage concessions, health-care benefits and closing or selling plants.

Blackstone owns a 55 percent stake in TRW Automotive Inc., the biggest maker of automotive safety systems.

To contact the reporter on this story: Justin Baer in New York at jbaer1@bloomberg.net

Last Updated: March 14, 2007 16:13 EDT