Avis Budget Group's (CAR 0.85%) shares were stuck in the slow lane Tuesday. The veteran car rental company saw its stock decline by over 5% on the day, as investors digested a downbeat note on the industry from an analyst.
Tuesday morning, Morgan Stanley prognosticator Adam Jonas published a good news/bad news take on the auto and car rental industries.
The good news is that he and his team see the current worldwide auto chip shortage easing in the near future. Referring to that big Asian nation where many such chips are produced, he wrote that "Our Greater China semis team is highly confident that current semiconductor supply is sufficient to bring up auto production."
The bad news is that certain segments of the auto industry might actually suffer rather than benefit from this. One is used vehicle dealerships, which according to Jonas have seen price increases of more than 60% on a two-year basis. Another is the auto rental business.
As a leading company in the segment, Avis Budget Group is in the firing line. With demand softening on the easing of the chip shortage, those falling prices should make buying new and used cars more attractive than renting. They might also encourage renters to lower their current rates.
That said, the car rental industry is heading into a traditionally very busy time of the year. That slide in demand could be at least mitigated by the seasonal factor, as people clamor to hit the road on vacations this summer. So perhaps Avis didn't entirely deserve the share price drubbing it took on Tuesday.