Trump’s Auto Tariffs Spark Short Squeeze Rally in Hertz And Avis, But Will It Last?

Beaten-down auto rental stocks, Hertz Global Holdings Inc. (NASDAQ:HTZ) and Avis Budget Group Inc. (NASDAQ:CAR) were sent blazing on Thursday following the announcement of new tariffs on all imported vehicles by U.S. President Donald Trump.

What Happened: Shares of Hertz and Avis posted an impressive rally of 22% and 20%, respectively, in intraday trading, in response to the 25% tariffs imposed by the White House on all vehicles that are not manufactured in the U.S.

This explosive rally in auto rental stocks took analysts and investors by surprise, having witnessed steady declines in the sector throughout the past year. Hertz had been dubbed a favorite among short-sellers, with a short interest of 33%, followed by Avis at 11%.

SEE ALSO: Dow Dips 150 Points Following Trump’s Auto Tariffs, Greed Index Remains In Fear Zone

This is precisely what drove the sharp rally, as news of the tariff sent short-sellers running to cover their positions, resulting in a fairly potent short squeeze.

What It Means: The knock-on effect of tariffs on auto rental services seems fairly evident, as consumers will prefer renting cars or rideshare options, as opposed to buying a new car that could now cost several thousand dollars more.

Besides this, rental services replenish their fleet every two years on average, following which their current inventory is sold. Gil West, the CEO of Hertz, thus believes that the increase in the price of new cars will similarly increase the value of its existing fleet in the used market.

Moreover, both these companies have prices ‘locked in’ for all new deliveries this year, meaning they will not feel the heat of these tariffs, at least in the short run.

While this compelling short-term rally offers a much-needed respite to both of these companies, very little changes in the long run. With considerable debt at several times free cash flow, and consistently losing market share to rideshare services, Avis and Hertz do need to rethink their business model.

Auto rental stocks aren’t entirely immune from the chaotic new tariffs either, with both Hertz and Avis having extensive overseas exposure. The new tariffs and reciprocal ones that are expected from other countries could have a sizable impact on their operations.

READ NEXT:

• Trump Organization Invests $1.5 Billion In Luxury Golf And Urban Project In Vietnam Amid Tariff Uncertainty

Photo courtesy: Shutterstock