Cerberus Capital Management last night cleared the biggest hurdle in its bid to buy Chrysler, the troubled carmaker, as the most powerful American car workers union dropped its opposition to the private equity firm and threw its support behind the $7.4 billion (£3.7 billion) deal.

Officials from the United Autoworkers’ Union (UAW), a labour organisation that had vehemently opposed private equity ownership of America’s car manufacturers, fought over the weekend to convince Daimler to keep Chrysler within its parent group.

However, once the final details of the deal emerged late on Sunday night, the UAW executive dropped its opposition to the private equity firm taking control.

Ron Gettelfinger, the union’s president, confirmed the weekend’s moves yesterday. The UAW did “make a last-ditch effort” to keep Chrysler within Daimler, Mr Gettelfinger said, but now he thought that his members would be better served if the union changed its stance. “It’s time to move on,” he boss said.

“After a thorough review, [we] concluded that the transaction with Cerberus is in the best interest of our membership, the Chrysler Group and Daimler,” Mr Gettelfinger said. “We are satisfied now that the decision has been made so that our membership and management can focus on designing, engineering and manufacturing the finest-quality products for the future success of the Chrysler Group.”

Mr Gettelfinger hinted that he had changed his mind about Cerberus after a 90-minute meeting with Daimler executives from Germany over the weekend. Dieter Zetsche, the Daimler chairman, and Tom LaSorda, Chrysler’s chief executive, explained during the private meeting that “the status quo was no longer an option”, he said.

It is understood that an assurance by Cerberus that the private equity group would shoulder the $18 billion pension and healthcare liability weighing down Chrysler was chief among the arguments that persuaded Mr Gettelfinger to change his mind.

In the deal, announced yesterday morning, an affiliate of Cerberus will acquire 80.1 per cent of a new company called Chrysler Holding LLC, while DaimlerChrysler will keep a 19.9 per cent stake.

The Cerberus affiliate will make a capital contribution of $7.4 billion to the new company and will take responsibility for pension and healthcare obligations.

John Snow, the Cerberus chairman, emphasised the firm’s willingness to take full responsibility for Chrysler’s employee liabilities, adding that the deal would offer Chrysler workers “great comfort”.

Mr Gettelfinger’s change of stance indicates a radical shift in the relationship between America’s toughest union bosses and private equity.

Cerberus is also at loggerheads with the UAW about a key restructuring of Delphi, the car parts manufacturer that was once part of General Motors and is now bankrupt. Cerberus was one of several financial backers hoping to bring the company back from the dead, but recently it pulled out of negotiations and withdrew from Delphi’s team of financial backers. It is hoped that yesterday’s surprise agreement might lead Cerberus back to the table at Delphi.

The Cerberus deal is the first time that a financial backer has acquired one of the “big three” American carmakers. It also marks the end of a disastrous nine-year relationship between Daimler and Chrysler, which has gone down as one of the worst mergers in corporate history.

The German carmaker bought Chrysler for $36 billion at the peak of its performance, when its market valuation was at a record high. Since then the carmaker’s fortunes have plunged along with the rest of the US auto sector, as nimble Asian manufacturers have dominated the domestic market with lower costs and more fuel-efficient vehicles.

The financial arrangements of the deal are particularly complex. It will result in a €500 million cash outflow for DaimlerChrysler and will lop between €3 billion and €4 billion off its net profit this year.

The German company will be able to shed $18 billion of retirement and healthcare liabilities, which will be folded into a new Chrysler holding company. Chrysler’s pension liabilities amount to $29 billion.

More than $6 billion of the $7.4 billion that Cerberus will pay for the carmaker will be put into Chrysler. DaimlerChrysler will get $1.35 billion.

— $29bn Chrysler’s outstanding pension liabilities

Source: Chrysler

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax