Daimler has redeemed its 19.9% share in American automobile company Chrysler.

Daimler is to separate from Chrysler, redeeming its 19.9% share in the company, as it announces a net loss of €1,286 million (£1,147m) in Q1 of 2009.

The German automobile company bought America’s Chrysler in 1998 but sold most of it in 2007 to Cerberus Capital Management. The separation will also see Daimler forgive Chrysler’s outstanding loans since ownership transferred to Cerberus.

Daimler will also pay three annual instalments of US$200m into Chrysler’s pension plans to help secure pension payments to former employees of DaimlerChrysler AG.

In exchange for the waiver of the loan and the pension payments, Chrysler and Cerberus have agreed to waive any legal claims against Daimler.

Daimler has stated that once the agreement is completed, the relationship between the two companies will “solely consist of supplier-customer relations”, and expects its Q2 earnings to reduce by $700m because of it.

Struggling Chrysler has received confirmation of help from the US Government, and has received $4 billion of the $7 billion working capital loan that it requested to help cope with the “unprecedented decline in the automotive sector”. It has recently added to its request, asking for $2 billion more due to “the continued deterioration in the economy”.

The automobile industry as a whole is experiencing difficulties: in the UK the number of new cars produced fell by more than half last month; Honda has reported a 77% decline in 2008 profits; while German manufacturer Volkswagen has reported a 74% drop in profits.