The terms of the merger see SAIC buying Fiat out of Nanjing Fiat, the 50-50 car manufacturing joint venture its has with Nanjing Auto, which builds models for the Chinese market including the Palio, Siena and Perla (above).

Fiat is to end its Chinese 50-50 joint venture with Nanjing Automotive, the announcement of the buyout of Fiat's stake coming as Nanjing outlined its merger with the country's biggest automaker, SAIC Motor Co.

The termination of the struggling joint venture was announced today by Yu Jianwei, the President of Nanjing Auto, as the merger was unveiled to reporters and investors. Already China's biggest automaker, SAIC sees the merger as building a solid platform from which to launch worldwide growth, and the beginning of consolidation in the fragmented Chinese car industry. Nanjing Auto bought the assets to the MG Rover company in 2005, while SAIC acquired the rights to several Rover models, including the Rover 75 which it now builds badged as the Roewe 75.

Under the terms of the merger, SAIC will pay 2.095 billion yuan to the Yuejin Motor Co, which owns Nanjing Auto, to take over all its vehicle and automotive components businesses, which include the MG brand. SAIC will also give Yuejin Motor 320 million shares of listed SAIC shares, which is equivalent to 5 percent of the company. SAIC and Yuejin Motor will also set up a new joint venture company, Dong Hua Co, which will take over various other assets including components and services. Dong Hua Co will be tilted 75 percent in the favour of SAIC.

The terms of the merger also include buying Fiat out of Nanjing Fiat, the 50-50 car manufacturing joint venture its has with Nanjing Auto, which builds models for the Chinese market including the Palio, Siena and Perla. "Fiat and Nanjing Auto have reached consensus and Fiat is giving up its stake in the venture," Yu Jianwei told reporters today. "But cooperation with Fiat will continue in commercial vehicles and auto parts manufacturing," added Yu. Nanjing Auto has a separate joint venture with the Fiat Group's Iveco truck-and-bus division to build Daily vans. Iveco also has a joint venture with SAIC to build trucks and the merger is expected to simplify the arrangement. "Although their collaboration in the passenger cars sector has come to an end, the long-standing cooperation between the two groups will continue," read a statement issued by Nanjing Auto and Fiat.

Fiat CEO Sergio Marchionne has been publicly dissatisfied with the Nanjing Fiat joint venture for sometime, and in particular with Nanjing Auto's major investment and close attention paid to the defunct English MG brand it purchased in 2005. Set up at the end of the last decade, Nanjing Fiat has struggled to make any impact in China, despite numerous operation overhauls and re-launches. Last year it sold just over 30,000 units, almost 10,000 short of the target Fiat had set it and far below its other European rivals, leaving the Italian firm with a lot of catching up to do. "The decision gives us total freedom of action to concentrate on the restructuring of our automotive business in China," said Fiat in a statement today.

This summer Fiat set up a new joint venture with rival Chinese carmaker Chery Automotive which will see 175,000 units of Fiat and Alfa Romeo models being built in the country from 2009, and comes on top of an earlier deal that will see Fiat buying 100,000 petrol engines a year from Chery.