The sale to Cerberus Capital Management LP -- backed by the United Autoworkers Union and expected to be finalized in this third quarter -- leaves DaimlerChrysler with a 19.9 percent stake in the iconic Auburn Hills, Mich., automaker, to be known as Chrysler Holding LLC.
DaimlerChrysler will change its name to Daimler AG.
No new job cuts are planned by the new owners, said Chrysler Chief Executive Officer Tom LaSorda, who will continue to run the company.
Of the $7.4 billion, Cerberus agreed to invest $5 billion in the new Chrysler and $1.05 billion in Chrysler's financial arm. The remaining $1.35 billion will go to DaimlerChrysler, the companies said.
Daimler-Benz AG paid $36 billion for Chrysler in 1998.
The new Chrysler will be responsible for nearly $19 billion in Chrysler pension and healthcare costs.
Chrysler executives will leave the DaimlerChrysler management board, which will be reduced to six people.
"We're confident that we've found the solution that will create the greatest overall value -- both for Daimler and Chrysler," DaimlerChrysler CEO Dieter Zetsche said. "With this transaction, we have created the right conditions for a new start for Chrysler and Daimler."