Pyeonghwa, which produces models based on ageing Fiat SpA designs as well as those of Brilliance China Automotive Holdings, is the sole carmaker in isolated North Korea, although few of its impoverished citizens are able to afford its products.
"Pyeonghwa Motors' South Korean side is planning to pull out from the joint automaker and donate its 70 percent stake to the North," said a source familiar with the transaction, who declined to be identified due to the sensitivity of the issue.
Spokesmen for the church were not immediately available for comment.
Sun Myung Moon, the founder of the Unification Church and a sprawling business empire, died in September aged 92. He was born in what is now North Korea
The church's joint venture with North Korea, set up in 2002, was one of the few to survive a freeze in relations between the North and South following the shooting of a South Korean tourist in 2008 by North Korean troops.
"The Unification Church's Moon made a will to give back the auto business with the North before he passed away. It is not because its business wasn't doing well," said the source.
Pyeonghwa produces about 2,000 vehicles a year, according to the source, in a country where most independent estimates say that gross domestic product per capita is less than $2,000.
Other estimates put Pyeonghwa's output at 1,000 cars a year or less.
While many North Koreans can only dream of owning a car, it appears that the country's top leadership prefers something a little more upmarket.
When leader Kim Jong-il died in December last year, he took his final journey atop an aged Lincoln Continental, which was accompanied by a fleet of black Mercedes sedans.
Pyeonghwa is based in the North Korean city of Nampho and the company says on its website (http://www.pyeonghwamotors.com/eng/) that its 10.76 million square foot factory has the capacity to produce 10,000 vehicles a year.
It listed sales as 1,873 vehicles in 2011.
North Korea has vowed to become a "strong and prosperous nation" by 2012, although initial expectations that its youthful new leader Kim Jong-un would open the country for more business appear to have been dashed.
Investors from China, the North main diplomatic and economic backer, have complained that they have been shaken down while doing business there.
(Writing by David Chance; Editing by Robert Birsel)