As Washington leaders hash out a $700 billion bailout plan, the capital equipment sector is seeing warning signs of what could happen if it were to fail: a credit crunch that would squeeze buyers of injection presses and other primary plastics machinery.
``There is a tightening beginning to take place across the system,'' said Eli Lustgarten, who covers industrial equipment at Longbow Research in Independence, Ohio.
Interviewed early Sept. 26, Lustgarten said the Wall Street financial crisis so far had ``not affected the industrial sector to a large extent.''
Lustgarten, echoed by some plastics machinery officials, said banks and other lenders have started asking for more details from businesses wanting to buy primary machinery or expand. Some are charging somewhat higher interest rates.
``These are warning signs that, if we don't bring stability back to the system and we don't make sure liquidity remains, that we could begin to see it materially affect business activity and the industrial sector,'' Lustgarten said.
But events are changing rapidly on what would be the U.S. government's biggest intervention in the financial system since the Great Depression. Federal Reserve Chairman Ben Bernanke compared credit to plumbing necessary to keep the U.S. economic system moving.
Wall Street jitters filtered down to a trade show held Sept. 23-25 in Rosemont, Plastec Midwest/ Plastics USA. Lenders are applying more scrutiny, said Jerry Johnson, general manager of Toyo injection presses for Maruka USA Inc.
``We have found that if our client does not have sparkling-clean credit he is going to be subject to a higher interest rate, possible personal guarantees more requirements than what would be normally expected in equipment finance,'' Johnson said.
Injection press buyers also may have to put more money down to reduce the amount of financing, he said.
A major credit squeeze would come at a bad time. The U.S. market for injection molding machinery fell below 3,000 units last year half its size in the booming late 1990s.
Johnson, a machinery sales veteran, recalls that the company he worked for then offered deals for zero money down, and 1 percent less than the prime rate.
But those easy-money deals stopped when the bottom fell out in 2000, he said. They won't return, Johnson said, and machinery companies today will have to cope with tighter credit than just a few months ago.
A Chicago finance company, National Machine Tool Financial Corp., sent people to canvass the Rosemont trade show to talk to capital equipment suppliers. NMTFC has done work for Maruka of Lombard, Ill., which also sells metalworking equipment and die-casting machines.
NMTFC has its own line of credit and uses multiple funding sources nationwide to secure financing for industrial equipment, said President Robert Lang. His firm created promotion materials for Toyo buyers, offering a nominal interest rate as low as 6.5 percent.
When customers face tighter credit, machinery companies will have to become more active in helping them get financing, Lang said. ``All of the funding sources in the United States have some story going on that makes the future a little shaky,'' he said.
Maruka's Johnson said it will be much harder to get money for new manufacturing companies, which have no past track record to analyze.
``And now, if business is coming back from China, now you've got a lot of guys that are looking at opportunities and they can't go after it, because there's no money,'' he said.