Shares of car rental companies Hertz (HTZ) and Avis (CAR) are continuing their declines from Tuesday. Shares of auto rental companies were down sharply Tuesday, along with most of the auto sector, after reports of waning used car sales and warnings from a major auto lender. Car rental companies derive revenue from the day-to-day car rental fees and the resale values of their fleets, so a hit to the used car market will impact their overall operating revenue.

WHAT'S NEW: In a note out Monday, Morgan Stanley analyst Adam Jonas said the firm believes the decline in used car values may happen sooner than most analysts see, however the downturn "could also prove to be far more severe." Additionally, a report out of NADA, a division of JD Power and Associates, said that prices for used vehicles reversed what is typical of February as "used vehicles up to eight years old fell substantially last month, dropping 1.6% compared to January." The decline is in stark contrast to the 1% increase that was expected.

AUTO LENDER CAUTION: Ally Financial (ALLY), which derives a good chunk of its revenue from auto financing, said in an investor presentation Tuesday that it is "closely monitoring" auto finance credit trends. The lender added that it sees a near-term impact to earnings per share growth by lease and used vehicle price declines and provision build

WHAT'S NOTABLE: Earlier today, in a note to clients, research firm MScience indicated that Hertz's first quarter revenue are trending at $1.935B versus consensus analyst estimates of $1.975B. The research firm said Enterprise captured greater share at the expense of Hertz and Avis Budget in January but Enterprise and Hertz took share from Avis in February.

PRICE ACTION: Shares of Hertz are down almost 5% to $18.49 per share, while Avis is lower by over 1% to $29.15 per share in midday trading.