Tariffs Could Bring Wide, Varied Burdens On U.S. Car Rental Industry

[Editor’s Note: The following article combines edited information from a ChatGPT inquiry on the effects of tariffs on car rental with previous Auto Rental News content].

The U.S. avoided an economic upheaval last week after the Trump Administration agreed with Canada and Mexico on a 30-day pause on a wide array of tariffs on North American products. 

In less than a day, the signs pointed to a catastrophic mix of plunging stock markets and soaring prices in less than a day. The 30-day reprieve now allows for a more sober, measured assessment of how tariffs would affect various business sectors, including car rental.

The tariff threat comes after a year of flat revenue and higher fleet counts in the U.S. auto rental sector, as operations resumed a more normal business pattern following the pandemic era. 

While new tariffs could increase rental car operations’ operating costs through increased vehicle prices, the full impact will depend on how well operations can adjust fleet management, pricing models, and operations, as they did during the pandemic. 

With 25% tariffs announced this week on steel and aluminum, and emerging tit-for-tat tariffs between the U.S. and China, the fallout can include general factors and niche-centric effects on different operations.

Here is an overview of key tariff impacts on the rental car industry overall as cited by Open AI in response to specific questions:

Higher Vehicle Acquisition Costs

If tariffs are placed on imported vehicles or auto parts, rental car companies will face increased costs when purchasing new fleets.

Many fleets rely on foreign-made vehicles (Toyota, Hyundai, BMW, VW, Nissan, Mercedes), and higher import duties will lead to higher prices.

Even U.S.-manufactured cars could become more expensive if tariffs affect imported components and if they see a higher demand.

Maintenance and Repair of Rental Vehicles

Many replacement parts, such as brakes, transmissions, and electronics, are imported. If tariffs are imposed on these parts, repair and maintenance costs for fleets will rise.

This could lead to longer waiting times for vehicle repairs and higher operational expenses. This is both good and bad for rent-a-car companies.

Rental Rate Increases

RACs should pass higher costs on to consumers. If vehicle acquisition and maintenance become more expensive, rental prices may rise. However, independent RACs will struggle if they try to pass on these higher costs as they cater to more value-conscious consumers.

Travelers and businesses that rely on rentals could see higher costs, affecting demand.

Smaller rental firms with less negotiating power or capital reserves may struggle more than larger chains. This disparity could lead to increased market consolidation or a reshuffling of competitive positions within the industry.

Fleet Management Adjustments

Companies may hold onto vehicles longer instead of frequently refreshing their fleets, leading to an increase in older rental cars. Again, this is both good and bad for RACs.

They might shift purchases toward domestic automakers if tariffs disproportionately affect foreign brands, increasing the cost of domestic fleets.

Impact on Tourism and Business Travel

If rental rates rise significantly, it could affect demand, especially in destination markets.

Business travelers may seek alternatives like ridesharing or corporate leasing programs.

Tariff Effects on Independent, Franchise, and Corporate RACs 

Tariffs on vehicles and auto parts would affect independent, franchised, and large corporate-owned rental car companies differently, mainly due to their fleet purchasing power, pricing strategies, and financial flexibility.

For large corporate-owned rental car companies, such as Hertz, Enterprise, and Avis, tariffs could bring a mix of outcomes on operations:

Advantages:

• Bulk Purchasing Power: Large companies buy vehicles in bulk directly from manufacturers, often receiving fleet discounts. This can partially offset tariff-related cost increases.
• Access to Domestic Vehicle Supply: They have long-standing relationships with automakers, allowing them to shift purchases to domestic models easily.
• Better Pricing Flexibility: Large rental firms can spread cost increases over a larger customer base, softening the impact of higher rental prices.
• Stronger Financial Reserves: They can absorb short-term cost increases and hedge against economic fluctuations.

Disadvantages:

• Still Impacted by Repair and Maintenance Costs: Tariffs on imported auto parts (e.g., tires, electronics, transmissions) will raise repair and maintenance expenses, which affect the entire industry.
• Pressure to Increase Prices: While they have pricing power, they must remain competitive with independent and franchise competitors.

Effects on Independent and Franchised Rental Car Companies

• Higher Vehicle Acquisition Costs: Independent rental companies usually buy vehicles at retail prices rather than receiving fleet discounts, making them more vulnerable to tariff-driven price hikes.
• Limited Ability to Absorb Costs: Independents often have thin profit margins and less financial flexibility, forcing them to aggressively raise rental prices.
• Struggles to Access Domestic Vehicle Supply: They may rely on imported vehicles that are more fuel-efficient or cost-effective than domestic models.

Challenges for Franchised Rental Car Companies:

• Varies by Franchise Agreement: Some franchises benefit from corporate purchasing agreements, while others must buy their own vehicles, leaving them partially exposed to tariff costs.
• Increased Franchise Fees and Cost Pressures: If franchisors (e.g., Hertz or Avis franchisees) pass on costs from their suppliers, individual franchise owners may struggle to remain profitable.
• Localized Demand Sensitivity: Franchises in tourist-heavy markets (e.g., Florida, Las Vegas) could be hit harder if price-sensitive customers reduce rentals.

Potential Advantages for Independents & Franchises:

• More Flexible Pricing Strategies: Smaller companies can adjust pricing faster than corporate giants in response to market changes.
• Ability to Source Used Vehicles: While corporate rental firms mostly buy new cars, independents can expand fleets using the used vehicle market, helping mitigate cost increases.
• Niche Market Opportunities: Independents can focus on specialized or economy segments to attract cost-conscious customers and avoid higher corporate rental rates.

Silver Linings for Independent and Franchised Rentals

While tariffs pose serious challenges, independent and franchised car rental companies may still find these opportunities to compete:

• Agility and Customer Service: Independents often offer better customer service and can tailor pricing based on demand, unlike corporate policies that may be rigid.
• Niche and Local Market Positioning: Tariffs might force large companies to streamline their fleets, leaving gaps in specialty vehicle rentals (e.g., electric vehicles, SUVs, off-road rentals) that independents can capitalize on.
• Leaner Operations: Unlike corporate competitors with large overhead costs, independents and franchisees can adapt faster to cost pressures by adjusting fleet sizes, sourcing strategies, and operational efficiencies.

Final Takeaway: Who Faces the Biggest Risks?

• Independent car rental operators face the greatest risks from tariffs. Their lack of purchasing power, reliance on third-party repair services, and inability to absorb cost increases make them highly vulnerable.
• Franchised rental operators will be somewhat buffered if their parent companies negotiate fleet pricing deals, but they still face risks from higher fees and thinner margins.
• Corporate-owned rental companies will better absorb costs, though they may still pass increases to consumers through higher rental rates.