DaimlerChrysler will pay £1.26bn for a 34% stake in Mitsubishi Motors in a deal welcomed by the Japanese carmaker's UK importers and dealers.

The deal, signed this week in Stuttgart, creates the world's third largest automotive company with combined sales of more than 5m vehicles, but it excludes the truck and bus division.

Paul Williams, sales and marketing director for Mitsubishi Motors in the UK, 49% owned by MMC, said the deal would make the company “potentially stronger”.

He added: “The uncertainty of recent months has been harmful and the brands will be a good fit.”

Jurgen Schrempp, DaimlerChrysler chairman, said: “The new alliance helps us to expand the Smart brand in the near future. It gives us access to growth markets in Asia and beyond, such as Latin America or Eastern Europe where DaimlerChrysler will in future have the optimum product mix.”

Mitsubishi has a market share of up to 26% in many parts of Asia, against DC's 3%. The combined market share will be about 10.8% in Japan and 9.4% in the other parts of Asia Pacific.