May 15 (Bloomberg) -- Cerberus Capital Management LP, the private equity firm buying the Chrysler unit of DaimlerChrysler AG, is assembling one of world's biggest automotive companies.

The acquisition of an 80.1 percent stake in Chrysler for $7.4 billion will give the New York-based leveraged buyout firm control of the fourth-largest U.S. automaker. Cerberus will add the carmaker to holdings that include GMAC LLC, the former financing unit of General Motors Corp., and the parent of the Alamo Rent-a-Car and National Car Rental chains.

Cerberus, which buys troubled companies and corporate cast- offs, has put together a group of auto-related assets similar to the ones GM and Ford Motor Co. owned before $25 billion of combined losses in 2005 and 2006 forced them to shed assets. Without the scrutiny of public shareholders, the firm may reduce employee costs and increase productivity before selling Chrysler at a profit.

``Their intention is to operate it and try and build it up,'' billionaire investor Wilbur Ross, who used a similar strategy in the auto-parts and steel industries, said in an interview in New York. ``It will give them more flexibility having it in a private mode until they get it fixed.''

The firm, founded by former Drexel Burnham Lambert Inc. bond trader Stephen Feinberg in 1990, may have gained the edge with Stuttgart, Germany-based Daimler by hiring former Chrysler executive Wolfgang Bernhard as an adviser, Canadian Auto Workers union President Buzz Hargrove said. Bernhard, 46, was Chrysler's chief operating officer from 2000 to 2004, when the Auburn Hills, Michigan-based company cut 34,000 jobs and closed or sold nine units or factories. He later served on Volkswagen AG's management board.

Magna, Blackstone

The firm beat Canadian auto-parts supplier Magna International Inc. and a partnership of New York buyout firms Blackstone Group LP and Centerbridge Capital Partners LP in the bidding for Chrysler. Feinberg, 47, has no plans to quickly sell the automaker, Cerberus Chairman John Snow said.

Cerberus ``can put Chrysler on a sustainable path towards true profitability,'' Snow, 67, a former U.S. Treasury secretary, said in an interview in Stuttgart. ``We are able to take a longer view, we are able to be patient.''

Daimler, which paid $36 billion for Chrysler in 1998, decided to sell the U.S. car company after failing to overcome declining sales and rising pension and health-care costs. Chrysler lost $680 million last year and ceded market share.

GMAC, Alamo, National

The buyout firm will invest $5 billion in Chrysler's industrial operations and $1.05 billion in its financial- services unit, with Daimler getting the balance of the firm's capital contribution. The German company will end up paying $650 million in the transaction, including granting a loan of $400 million to Chrysler.

Cerberus led an investor group last year that bought 51 percent of Detroit-based GMAC, which makes home and auto loans. It acquired bankrupt Vanguard Car Rental Holdings LLC, the Tulsa, Oklahoma-based parent of Alamo and National, in 2003 for $290 million. In 2004, it paid $147 million for GenCorp's GDX Automotive unit after it lost $14 million in the first quarter.

Cerberus is also part of a group that offered to invest $3.4 billion in bankrupt auto-parts maker Delphi Corp. Without giving a reason, Delphi said last month it expects Cerberus to back out. Cerberus has declined to comment.

Lenard Tessler, who led Cerberus's negotiations for Chrysler, also serves on GMAC's board. He joined Cerberus in 2001 after spending 11 years at TGV Partners, a Newport Beach, California-based private-equity firm he helped start. While private-equity firms typically manage their investments separately, Cerberus may attempt to make its holdings work together.

Finance Units

Chrysler's finance arm and GMAC may share some administrative and technical functions to pare expenses, said John Novak, an analyst with Morningstar Investment Service Inc. in Chicago.

``There's probably a significant opportunity to eliminate some costs,'' Novak said in an interview.

Feinberg, a former U.S. paratrooper, has expanded Cerberus, named after the mythological three-headed dog that guards the gates of hell, from a hedge fund focused on distressed corporate debt to a buyout firm whose acquisitions include banks in Japan and Austria, real estate in Germany, and Albertson's supermarkets in the U.S.

The company's interest in the automobile industry started in the 1990s, when it took stakes including 5 percent in United Auto Inc., a New York-based auto dealership chain.

To contact the reporters on this story: Jason Kelly in Atlanta at jkelly14@bloomberg.net; Justin Baer in New York at jbaer1@bloomberg.net.

Last Updated: May 15, 2007 07:36 EDT