Investing.com -- Shares of Hertz and Avis Budget (NASDAQ: CAR ) surged 25% each as investors reassessed the value of the companies’ large vehicle fleets following the imposition of a 25% tariff on auto imports by President Trump. The significant uptick in stock prices during the trading session was also partly attributed to a short squeeze, with 40% of Hertz’s float and 28% of Avis Budget’s float being held short.

The tariff on imported vehicles is expected to increase new car prices, which in turn makes the used vehicles sold by Hertz and Avis Budget more attractive to consumers. Bloomberg Intelligence analyst Steve Man noted, "If new vehicle prices go up, the used vehicles the companies sell become more attractive."

The bullish sentiment was not isolated to car rental companies. Morgan Stanley pointed out that used car firms such as CarMax (NYSE: KMX ) and Carvana (NYSE: CVNA ), as well as aftermarket parts and services companies, could stand to gain from the rising new car prices.

The market’s response reflects a recalibration of the perceived value of Hertz and Avis Budget’s assets, given the new trade environment. With a sizeable portion of their business model relying on the sale of used vehicles, the companies are positioned to potentially benefit from the shift in consumer demand from new to used cars if new car prices become prohibitive.

This move in the car rental industry highlights the broader impacts of trade policy on various sectors, with ripple effects that can lead to a reevaluation of stock values by investors. As the market adjusts to the new tariff measures, companies with large fleets of vehicles may continue to see volatility based on their exposure to the used car market and their ability to capitalize on the changing dynamics in the auto industry.

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