Trump’s Automobile Tariffs Ignite Stock Surge for Hertz and Avis
On March 28, 2025, news broke that President Donald Trump had imposed new tariffs, marking a 25% increase on finished cars and select automotive parts. While this decision sent shockwaves through most automobile manufacturers and auto-parts companies, two rental car firms—Hertz Global Holdings Inc. (HTZ) and Avis Budget Group Inc. (CAR)—recorded significant stock market gains. Understanding the dynamics of supply, demand, and pricing can help explain this seemingly counterintuitive market behavior.
Overview of the Tariffs
The tariffs are expected to have a multifaceted impact on the car market. By increasing the cost of new vehicles, there is a potential risk for a reduction in new-car production. With car prices on the rise, consumers may gravitate toward the used-car market to avoid the expensive new options. This shift could lead to a significant increase in used-car prices, further enhancing the residual value of vehicle inventories held by rental car companies.
Stock Reactions
On the day of the tariff announcement, Hertz’s stock soared by an astonishing 22.6%, marking its largest single-day gain while Avis saw a notable 20.5% increase, making them the leading gainers on the Dow Jones Transportation Average. Amid an otherwise struggling stock market scenario for the auto industry, these gains highlight a unique opportunistic response from investors who recognize the potential in the used car sector.
The Context for Rental Car Companies
Hertz has been navigating challenges in recent years, particularly during a phase of declining car values, compelling the company to cut down its rental-car fleet size. During Hertz’s post-earnings call on February 13, Chief Executive Gil West expressed optimism, stating that the strategic positioning of their current fleet would eventually yield dividends amid ongoing trade tensions.
Impact of the Tariffs on Used Car Prices
The imposition of automobile tariffs is forecasted to elevate new car prices significantly. As explained by West, the increase in the price of new vehicles often leads to a corresponding rise in the value of used cars. “If tariffs have a resulting increase in new car prices, the counterbalance is likely,” he asserted, indicating that higher residual values would ultimately bolster Hertz’s business model.
Avis Budget Group’s Perspective
Avis, with a slightly different strategic approach, remains unaffected in the short term. CEO Joe Ferraro stated that the company had already secured cars that would incur tariffs, ensuring that their prices were locked in before the new rates took effect. Therefore, he expressed confidence that tariffs wouldn’t negatively impact them for the time being. Ferraro remarked, “If new-car prices get elevated, used-car prices should benefit from that, and that’s normally what happens in an environment like this.” This sentiment suggests an optimistic outlook for Avis, as demand for used vehicles is expected to rise alongside new vehicle costs.
Market Performance: Hertz vs. Avis vs. S&P 500
Year-to-date performance illustrates Hertz’s stock has appreciated by 15.6%, contrasting with Avis’s 8.5% decline. In stark contrast, the broader market, represented by the S&P 500, has experienced a 3% pullback within the same timeframe. These contrasting stock performances indicate the unique positioning of Hertz and Avis in light of external tariff pressures.
Conclusion
As the automotive landscape continues to evolve under the influence of new tariffs, the immediate future looks promising for rental car companies Hertz and Avis. By understanding market dynamics and leveraging strategic inventory decisions, both firms stand poised to actualize greater value from their operations. Investors have shown enthusiasm for these opportunities, reflecting a clear shift in market sentiment amidst a backdrop of uncertainty.
In light of these developments, one must stay informed about the automotive market’s fluctuations, especially as the impact of trade policies and economic conditions remain ongoing variables influencing investor behavior.