Nov. 14 (Bloomberg) -- Cerberus Capital Management LP, wading into the politics of a U.S. auto-industry bailout, would give up any profit on a future sale of Chrysler LLC should the company receive federal financial aid.

Chrysler also expects the U.S. government to take a stake in the company in any rescue, Chief Executive Officer Robert Nardelli said yesterday. Federal backing for a merger between Chrysler and General Motors Corp. was discussed before GM ended talks last week, people familiar with the matter said.

The no-profit pledge may help ease opposition in Congress to helping the industry, because Cerberus is a buyout firm. Cerberus founder Stephen Feinberg ``has basically gone on record saying he would forfeit'' profit from a sale under a bailout, Nardelli said at a conference in Palm Desert, California.

``This is a sign they need the money and are willing to do anything to get it,'' said Dennis Virag, president of Automotive Consulting Group in Ann Arbor, Michigan. Taxpayers won't want to let ``a private-equity fund reap the profit,'' he said.

Chrysler, which isn't required to report financial results, has indicated it lost at least $1.08 billion in the first half. Cerberus acquired 80.1 percent of the automaker from Daimler AG in 2007 for a $7.4 billion investment, about a fifth of what the Germany company paid for Chrysler nine years earlier.

Worst Decline

A House hearing is set for next week on tapping the $700 billion bank-rescue plan for $25 billion in low-interest loans for U.S. automakers, which are struggling with their worst industrywide sales since 1991. Chrysler's 26 percent slide through October is the worst among major automakers.

Mounting losses helped spur GM and Chrysler into talks before GM withdrew on Nov. 7, according to people familiar with the matter. Detroit-based GM said it was suspending merger discussions without confirming that its partner was Chrysler.

Should the plan for a GM-Chrysler tie-up be revived with federal participation, one option would be to use $10 billion to $15 billion in U.S. loans and guarantees to help attract private investment, the people said.

Winning private-sector money would trim the amount of taxpayer funds devoted to a bailout. A combined company would result in fewer lost jobs, according to the people.

``It's still the best option,'' said Kim Rodriguez, head of Grant Thornton LLP's automotive restructuring group in Southfield, Michigan. ``It makes sense to have structural change. If all you are going to do is provide loan guarantees, there's no real structural change there.''

GM's View

Another option might be a merger under a so-called prepackaged bankruptcy, with financing arranged in advance, one of the people said. GM has said that bankruptcy isn't an option. It also hasn't changed its stance in a Nov. 10 filing that it set aside possible strategic acquisitions to focus on its liquidity, spokesman Tony Cervone said yesterday.

Nardelli on Nov. 7 said Chrysler will carry on with efforts to team up with other automakers.

In his speech yesterday at Ernst & Young's Strategic Growth conference, the Chrysler chief said ``it would be very difficult to make it through this unprecedented downturn'' without federal help for the Auburn Hills, Michigan-based automaker.

Because of Cerberus's willingness to forgo any profit, a rescue plan ``would not be supporting a private-equity company with government funds,'' said Nardelli, 60.

Should Chrysler receive any aid and then be sold, any profit would be returned to the federal government, said Tim Price, a Cerberus partner who acts as a spokesman for the firm.

Chrysler has announced the elimination of 35,000 jobs since February 2007, including trimming as many as 5,000 salaried positions by the end of 2008. The company also has said it cut product-development spending on most models.

``This is not about losing a company,'' Nardelli said of U.S. automakers' pursuit of federal aid. ``This is about potentially losing an industry. Because of the interdependence of the supplier network, the railroads, truckers, the impact goes much further.''

To contact the reporters on this story: Mike Ramsey in Southfield, Michigan, at mramsey6@bloomberg.net; Jason Kelly in New York at jkelly14@bloomberg.net

Last Updated: November 14, 2008 00:01 EST