Fiat Finds $1 Billion in Savings From Unlocking Chrysler's Cash

  • Merged company finally gets access to Chrysler's $13 billion
  • Interest savings may boost profit 630 million euros in 2018

Fiat Chrysler Automobiles NV Chief Executive Officer Sergio Marchionne has found a way to boost profit without selling more cars.

Two years after Fiat merged with Chrysler, Marchionne can finally gain full access to its cash stockpile of some $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 double net income to 4.7 billion to 5.5 billion euros by 2018, according to Massimo Vecchio, an analyst at Mediobanca in Milan. The carmaker said Wednesday it plans to remove the debt’s ring-fencing in the first quarter this year.

“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.”

The shares fell 1.3 percent to 6.92 euros at 5:21 p.m. in Milan. 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 19 percent since Dec. 30, the last day before the separation. That compares with a 16 percent drop for Ford Motor Co., 14 percent for General Motors Co. and a 17 percent decline for Volkswagen AG, which is still enmeshed 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 Skeptical

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 target, according to the average estimate of five analysts surveyed by Bloomberg. Not including Ferrari, the figure was 1.7 billion euros last year.

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.

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