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September 3, 2008

Stephen A. Feinberg, one of the country’s most powerful — and secretive — financiers, hoped to make a fortune out of the detritus of the American auto industry. Instead, he seems to be losing one.

Mr. Feinberg’s giant investment fund, Cerberus Capital Management, is racing to salvage multibillion-dollar investments in Chrysler, the smallest of the Detroit automakers, and GMAC, the financing arm of General Motors.

But for Cerberus, named after the mythological three-headed dog who guards the gates of hell, the news keeps getting worse.

On Wednesday, Chrysler, which owns the Jeep and Dodge brands, said its sales in the United States fell by a third in August — nearly twice the industry average — as the downturn in the auto business dragged on. Honda eclipsed Chrysler as the nation’s No. 4 seller of cars, and Nissan is closing in fast.

The same day, GMAC, in which Cerberus holds a 51 percent stake, said it was trying to stanch the bleeding from a business that was supposed to be immune to the ups and downs of the car industry: home mortgage lending. GMAC and its home loan unit, Residential Capital, announced that they would dismiss 5,000 employees, or 60 percent of the unit’s staff, and close all 200 of its retail mortgage branches.

It is quite a comedown for Mr. Feinberg, who founded Cerberus in 1992 with $10 million and was initially hailed as a savior at Chrysler. Over the years, Cerberus excelled by gaining control of companies in bankruptcy and nursing them back to financial health.

Now, Mr. Feinberg’s purchase of Chrysler and his deal for GMAC have knocked Cerberus down a peg.

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