The auto industry is currently in a state of nervous anticipation, and that’s not good for associated companies. One striking case in point is auto rental mainstay Avis Budget Group (CAR -11.41%), whose share price according to data compiled by S&P Global Market Intelligence was down by more than 25% week to date as of early Friday morning.
Troubled about tariffs
Avis didn’t have any negative news of its own to report. Still, investors were rightfully concerned about its vulnerability to current events — namely, the current round of tariffs imposed by the Trump administration on several of this country’s key trading partners.
On Wednesday, the government set 25% tariffs on all steel and aluminum imports coming into this country. The aim is to support the domestic metallurgy industry, but as with any trade war, not every industry benefits. Higher input prices for the two metals are a direct threat to auto manufacturers and, by extension, companies like Avis that purchase cars for their fleets.
At least those tariffs aren’t higher. Their imposition came after Trump pledged to levy duties of 50% on steel and aluminum coming from the most populous Canadian province, Ontario. This came on the back of the Ontario government threatening to impose duties of its own on American customers using electricity imported from there; it later climbed down from this pledge.
Steered by uncertainty
Investors famously dislike uncertainty, and uncertainty is the name of the game with the steel and aluminum tariffs.
Trump has shown a tendency to back down from some of his administration’s more aggressive talk and moves, so perhaps the tariffs on the two metals will be short-lived. Then again, they could prove to be quite sticky indeed, so it’s understandable for the market to be wary about any company in or near the auto business.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
