Car rental firms Hertz, Avis zoom as tariffs seen hurting new-vehicle demand

(Reuters) - Shares of highly shorted Hertz and Avis Budget Group surged on Thursday as U.S. President Donald Trump's plan to slap a 25% tariff on imported vehicles raised prospects of consumers opting for car rentals instead of buying expensive new cars.

The new levies could add thousands of dollars to the cost of an average vehicle in the United States. The American Automotive Policy Council said it is "critical" that the tariffs are implemented in a way that avoids price hikes for consumers.

"These rental companies actually benefit from the tariffs because if car prices are going to go up, maybe some people who are like, 'You know what? I don't travel that much. I'll just rent a car'," said Dennis Dick, chief strategist at the Stock Trader Network.

Hertz jumped 23.8% and Avis Budget gained 23% after both firms lost nearly half of their value in the past year.

Both Avis and Hertz are popular among short sellers, investors that bet on a stock's decline, with 13% and 14.5% of their respective outstanding shares in short positions, per LSEG data.

"You get a little bit of a short squeeze here too and that's really, really kick starting this rally," Dick said.

J.P. Morgan analysts said some auto parts and services firms could benefit from the new tariff announcements as consumers are likely to hold on to cars longer than usual, with repair frequency, and size, both benefiting the sector.

Shares of auto parts retailers O'Reilly Automotive Inc and AutoZone gained about 2.5% each, and Advance Auto Parts rose 5.4%.

Meanwhile, car firms with a global supply chain slumped, including General Motors, which was down 8%.

(Reporting by Medha Singh and Sukriti Gupta in Bengaluru; Editing by Maju Samuel)