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Mild recession would spell disaster for auto parts sector

A quarter of the companies in the auto parts industry are at risk of failure should the UK suffer even a slight recession according to research by financial analyst Plimsoll Publishing.

The research analysed the financial health of 2,053 companies in this sector over the last four years, giving a financial rating for each company as either: strong, good, mediocre, caution or danger.

13,798 companies in the UK rated by Plimsoll are currently in receivership, liquidation, or dissolved. Plimsoll rated 80% of these companies as "caution" or "danger" up to two years prior to their demise.

This Plimsoll rating system predicts that between 12,000 to 16,000 UK companies could fail in the next 12 months regardless of any deteriorating conditions in the economy. If a recession does hit, Plimsoll expects this figure to double.

The analysis found that 965 out of 2,053 companies are at a high risk of failure and 566 companies were even given a "danger" rating.

"If the economy does tighten up in the second half of the year, many of these companies already under pressure from normal business hazards will fail," said Don Turkington, managing director of Plimsoll.

Companies at a high risk of failure do not have the resources to compete, as typically these companies have been loss making or are heavily in debt.

Increasingly they will find their management options restricted. Although the majority of these companies will never reach a final demise, most will be sold or bought out.

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