Why Investors Slammed the Brakes on Avis Stock Today

Key Points

• One auto rental company scored a sales deal with a top online retailer. That company wasn't Avis.

• Investors clearly felt it had been lapped by its traditional rival.

• 10 stocks we like better than Avis Budget Group ›

Shares of Avis Budget Group (NASDAQ: CAR) coughed and sputtered like a stalling car on Hump Day, shedding almost 6% of their price across the trading session. That was almost entirely due to the news that its archrival had secured one of the strongest sales channels in online retail. That 5%-plus decline was notably more pronounced than the S&P 500's (SNPINDEX: ^GSPC) modest 0.2% drop.

A rival puts on the hurt

That rival was none other than Hertz Global Holdings, which reported that it has entered into a sales agreement with Amazon Autos. Since Amazon is a near-unavoidable monster in online retail, its vehicle marketplace is an obvious and handy destination for customers searching for new rides.

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Image source: Getty Images.

Under the terms of the arrangement, Hertz will sell its used cars through Amazon Autos. Like Avis, Hertz operates a huge fleet stuffed with all major global brands; this will work well in the new sales channel, as potential buyers should be able to find almost any make or model they like on the site.

This is only the latest development in the very long-standing race between the two rental companies, which, after all, offer essentially the same services and have similar footprints in this country (and in many markets overseas). Given that similarity, gaining any competitive edge is important, and the Hertz/Amazon deal certainly qualifies.

New channels needed

With that news, I'd expect Avis to either launch an effort to find a sales outlet or several comparable to Amazon, or intensify an existing try. This is something of a tall order, given the online retailer's size, scope, and sheer presence. We'll see what, if anything, the company will come up with.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.