By Aishwarya Nair
(Reuters) – Failure to break the deadlock on raising the US debt ceiling ahead of time could pose a challenge for capital-intensive businesses like industrial suppliers, a representative for agricultural and construction equipment manufacturers said.
The US government could be late to pay its bills next month and even default on its debt if Congress doesn’t raise the $31.4 trillion ceiling on government borrowing, a setback that could spell economic disaster and panic in the global financial markets.
A default US debt would also increase borrowing costs, leaving suppliers of parts and components to manufacturers like Deere (NYSE:) Co and caterpillars Inc (NYSE:NYSE) is scrambling to fund its operations, the Association of Equipment Manufacturers (AEM) said Tuesday.
“If we see a default or a financial crisis as a result of a standstill, I don’t see them (suppliers),” said Kip Eideberg, senior vice president of industry and government relations at AEM. level) can weather this storm”.
The industry body represents more than 1,000 companies that manufacture construction and agricultural equipment, as well as their suppliers.
Negotiators for Democratic President Joe Biden and Republican senator Kevin McCarthy reconvened at the White House on Wednesday, but both sides remain deeply divided over how to move forward.
Higher borrowing costs pushed 236 companies into bankruptcy in the first four months of the year, according to data from S&P Global (NYSE:) Market Intelligence. Of these, 23 are from the industrial sector.
The industry is now living on the strength of its 2023 and 2024 order books as customers replace older machines.
“If this crisis continues, those replacement orders will be further delayed, which will have a negative impact on our industry,” Eideberg said.
Eideberg added that the equipment manufacturing industry is expected to reach profit margins of around 6% by 2023 amid rising borrowing costs.
Earlier this month, agricultural equipment maker Deere said stocks for critical components remained low, affecting production in the second half of the year.
Deere declined to comment and Caterpillar did not immediately respond to a request for comment.