Editor's note: Analyst Massimo Vecchio estimated a 630 million euro boost for FCA in 2018. An earlier version of this story confused millions and billions in that figure.
MILAN (Bloomberg) -- Fiat Chrysler Automobiles CEO Sergio Marchionne has found a way to cut borrowing costs and help fund an expansion at the company by tapping into Chrysler’s cash.
Two years after Fiat merged with Chrysler, Marchionne has finally gained full access to its cash stockpile of about $13 billion after buying back bonds that had restricted the funds from being transferred outside the U.S. unit.
Marchionne can now tap that liquidity for an expansion plan and reap the rewards of borrowing less money, saving about 1 billion euros ($1.09 billion) on financing in 2018, according to the average of three analyst estimates obtained by Bloomberg.
Most of that will flow to the bottom line, giving a much-needed lift to Marchionne's effort to more than triple net income to 5 billion euros by 2018, according to Massimo Vecchio, an analyst at Mediobanca in Milan.
The CEO is set to update financial targets today, when the company releases last year's results.
"Fiat's net income is set to directly benefit" from gaining access to Chrysler's cash, said Vecchio, who estimates a boost of 630 million euros in 2018. "That positive impact isn't fully priced in."
After leading auto stocks in 2015, Fiat Chrysler has been the worst performing major automaker since it spun off Ferrari at the beginning of this year. The shares have lost 18 percent since Dec. 30, the last day before the separation. That compares with a 13 percent drop for Ford Motor, 14 percent for General Motors and a 16 percent decline for Volkswagen Group, which is still involved in an emissions-cheating scandal.
Marchionne has made implementing a 48 billion euro investment and restructuring plan his top priority after calling off efforts to entice GM into a merger.
Analysts are skeptical about his chances of reaching his goals. They project adjusted net income at about 3.34 billion euros in 2018, falling short of the 5 billion euro target, according to the average estimate of five analysts surveyed by Bloomberg. The figure was probably about 1.24 billion euros last year, according to the average of eight analysts surveyed.
Still, using Chrysler's cash will help Marchionne regardless of whether he can turn the Alfa Romeo brand into a challenger for BMW or boost sales of Jeeps in China.
The company estimates financing charges will drop to $1.3 billion in 2018 from $2 billion in 2014, according to a presentation posted on its website. That's one reason profit will probably outpace whatever increases Marchionne can drive in the underlying business, Michael J. Tyndall, an analyst with Citigroup, said in a note. He estimated the carmaker will save about 350 million euros on financing this year.