Dj These 2 Car Rental Stocks Could Be Winners Amid Trump's Auto Tariffs - Barrons.Com

By Ian Salisbury

President Trump's auto tariffs are bad news for much of the auto industry — but not rental car companies.

Shares of Hertz jumped 23% and Avis Budget 20% on Thursday, although both stocks gave back some gains Friday. Shares of Hertz were down 5% in Friday afternoon trading, while Avis Budget slid .9%.

The rental car companies' fates are in contrast to U.S. automakers like Ford, which is down 5% this week, and GM, down 10%.

The Trump tariffs could give a big boost to used car prices, creating a tailwind for rental car companies — which are continually looking to unload automobiles in order to keep their fleets refreshed and up to date.

"Tariffs are likely to be fairly inflationary for used vehicles. Our initial estimates on wholesale values could rise 2.2% this year," wrote Jeremy Robb, Cox Automotive's senior director of economic and industry insights in a note Friday.

Used car prices can have a big impact on rental companies' bottom lines. Last quarter, Avis Budget group reported $2.7 billion in revenue. Vehicle depreciation — a measure of the falling value of its fleet of automobiles — amounted to $800 million, the company's single largest expense outside of its operating costs.

Despite Trump tariffs, used car prices are still far below where their Covid-era peak. The used car and truck Consumer Price Index jumped from 140 in April 2020 to a peak of 217 in February 2022, before declining steadily for the much of the past three years. As of last month, it stood at 187.

That's taken a toll on rental car companies. Even after Thursday's big gains shares of Hertz are down 82% and Avis 70% since used car prices peaked three years ago.

Jefferies, which rates Avis a "buy," has a $105 price target on the stock, currently trading around $72. Analysts Stephanie Moore and Harold Antor noted in February, their optimistic view was based on the assumption that Avis's "fleet remains tight and continues to improve through 2024 with residual values normalizing."

For Hertz and Avis, the auto tariffs represent a step in that direction.

Write to Ian Salisbury at ian.salisbury@barrons.com

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By Denny Jacob

Hertz Global Holding and Avis Budget Group shares surged after President Trump announced tariffs that would bring fresh complications to auto manufacturers.

Shares of Hertz surged 19% to $4.09. Shares of Avis jumped 19% to $73.43, on pace for its largest percentage increase since March 2022.

Trump said he would impose 25% tariffs on all vehicles imported to the U.S., slated to begin about a week from now. Wedbush analysts in a research note said Trump's proposal 25% tariffs on cars made outside of the U.S. would ultimately push the average price up by $5,000 to $10,000.

The car rental companies stand to benefit from the coming tariffs by way of increasing value on their existing inventory. Higher car prices also would present an opening for Hertz and Avis for consumers looking for alternative transportation options.

Deutsche Bank analyst Chris Woronka earlier in the month said the used car market is likely to experience price increases if tariffs went into effect, opening the door for Avis to make gains on vehicle resales. It also can navigate soft patches in demand by quickly adjusting fleet levels, he added.

Write to Denny Jacob at denny.jacob@wsj.com