The auto industry has been hit hard by the global microchip shortage. Honda and other major brands have had to slow down vehicle production, or stop it altogether. That’s why so many car dealerships have such low inventory, and why many are raising their prices.

Recent market conditions have impacted the automobile industry in ways we’ve never seen before. The snowball effect began when automobile factories shut down for several months, through no fault of their own. This shutdown resulted in lower inventory levels as people bought many available vehicles as businesses reopened.

Another snowball effect occurred when those chip manufacturers transitioned their production from supporting the auto industry to the computer segment. All those people that had to work from home needed computers, monitors, modems, phones, and more. Now that the auto manufacturers can start production, they face the problem of not having the parts to complete the process, including electronic chips, because the chip manufacturers have spent the last year trying to keep up with the computer segment demand.

The auto industry represented a small percentage of the chip manufacturing industry before the shutdown. With the additional demand for phones, computers, and other electronics, the chip manufacturers have struggled to keep up with worldwide demand. Political leaders have lobbied their counterparts in those countries with the most production, but the simple fact remains that demand has risen higher than current production rates. Many countries, including the United States, have created stimulus plans to encourage companies to build new factories, but that won’t immediately impact the current situation.

Weather and fire have played a role in the chip shortage. Taiwan experienced severe drought over the last months. The chip manufacturing process requires large quantities of pure water, severely impacting Taiwan manufacturers’ ability to produce chips. Storms in Texas forced three semiconductor factories to close temporarily. Even a recent fire shut down one manufacturer in Japan responsible for making chips in support of the auto industry.

While many industries are affected by the semiconductor chip shortage, the automotive industry is affected the most. This is because many new vehicles require hundreds of semiconductor chips to be installed to ensure their essential systems can function properly. The automotive chip shortage has led many manufacturers to suspend or limit production of their vehicles. This means that fewer new models will be available for purchase on showroom floors across the country and around the world. The shortage has also caused the price of many new vehicles that have already been produced to increase due to competing demand among dealerships and the public.

The used vehicle market has also been affected by the car chip shortage. As new vehicles become more scarce, private sellers and dealerships are searching for used vehicles to supplement their inventory. Subsequently, the cost of used vehicles has gone up about 20% to 30%. While this can be an obstacle to used car shoppers, drivers looking to sell their used vehicle may be offered a higher price than they would otherwise.