Chrysler, based in Auburn Hills, Mich., has fallen to fourth place in the U.S. market and lost $1.46 billion last year. Like Ford and GM, Chrysler has lost market share to Japanese automakers as customers switch from pickups and SUVs to more fuel-efficient cars.
Chrysler, which has announced plans to cut 13,000 jobs, or 16% of its workforce, is expected to seek steep concessions from the United Auto Workers when talks on a new contract begin this summer.
Ballooning pension and healthcare costs have put U.S. automakers at a disadvantage to their Asian rivals. The so-called legacy costs add $1,500 to $1,600 to the price of a vehicle, said David Cole, director of the Center for Automotive Research outside Detroit.
"There's a lot more healthcare in a car than there is steel," he said.
"Unless they solve this problem, they really face the death of a thousand cuts. They're not competitive."
Analysts said the acquisition of the company by a private equity firm could stiffen the union's already strong aversion to wage and benefit cuts.
"The union will be very skeptical about any proposal that would have Cerberus take over liabilities unless there's an enormous amount of cash involved," Healy said.
"The union in the past has made statements that they view these investment companies as strip and flip."
UAW officials didn't return calls seeking comment Sunday.
Sources close to the talks said Chrysler Chief Executive Tom LaSorda would continue to run the company if Cerberus bought it. Former Chrysler Chief Operating Officer Wolfgang Bernhard, recently hired by Cerberus as an advisor, would be on the board, the sources added.
Bernhard is credited with having helped launch several recent Chrysler showroom successes, including the popular Chrysler 300 sedan and the new Dodge Charger.
A key concern, Catherine Madden of consulting firm Global Insight said, is whether a stand-alone Chrysler would continue to share design and production expertise with its former parent. Several of Chrysler's current models, such as the Crossfire sports car and the 300, use previously developed Mercedes engineering and components.
As for Daimler, shedding at least some of the responsibility for Chrysler's financial woes "will allow them to refocus on what they're good at -- producing luxury cars," said Jesse Toprak, an analyst with online auto data firm Edmunds.com.
