Fiat will pay $3.65bn to acquire the 41.5 per cent of Chrysler it does not already own, resolving one of the car industry’s biggest strategic issues.

The Italian car maker announced on Wednesday a deal to buy out a union healthcare plan’s share in Chrysler, one of the US’s Detroit Three big carmakers. The transaction will allow Fiat to merge Chrysler’s operations entirely with its own, exploiting badly needed economies of scale.

Fiat and Sergio Marchionne, chief executive of both carmakers, had been haggling for months with the Veba union pension trust which had threatened to take its shares to the public market. Apart from the $3.65bn for the 41.5 per cent stake, Fiat also will pay Veba an additional $700m in cash over four years, starting from the date of the deal’s completion.