Companies in the Peugeot supply chain are being urged to act now to prevent themselves being dragged down by the closure of Ryton.

Gavin Bates, who runs the Coventry office of business recovery and insolvency specialist BRI, says they should start talking to their banks and professional advisers immediately.

If they don't, they risk being overwhelmed when Ryton closes for good in 2007.

"Companies that rely on Peugeot for a significant proportion of their work should go back and review their business plans - and in the light of that decide how they are going to generate new turnover," said Mr Bates.

Diversification is the key to survival - a strategy that many Rover firms adopted successfully in the years leading up to the firm's collapse.

"At that time many suppliers saw the writing on the wall and looked for ways to avoid the worst effects by moving into other sectors, like medical equipment. From my experience a number of Rover sup-pliers took the decision to diversify after the sale by BMW.

"This gave them five years in which to plan - a luxury that clearly isn't available to Peugeot suppliers."

Suppliers that did manage to diversify, largely nullified the effect of Rover's collapse.

"I know of one supplier who had been almost totally reliant on Rover, who managed to reduce his exposure by 60 per cent by the time the company finally closed.

"When the collapse eventually came he was inconvenienced - but he was still in business."

Although less damaging to the West Midlands' economy than Rover's collapse, Peugeot's decision to end production of the 206 model and shut Ryton could harm many smaller companies that supply goods and services to the plant, Mr Bates believes.

"My advice is for firms to take action now to find what-ever replacement work they can, cut costs to the bare minimum, and shed surplus staff - in fact do anything that they need to do to survive," he said.

"They should be doing all of this right now, not in six months or 12 months time. My experience is that it's very often the loss of turnover that causes problems, rather than loss of profit.

"It is also important for companies to let their banks and professional advisers know what is happening. With their help they can reschedule debts and make sure they have the capital they need to weather the immediate storm.

"The danger, if they don't do this, is that things could get a good deal tougher when the banks review their current lending," Mr Bates added.

Major automotive component suppliers have largely shrugged off the potential loss of the Ryton plant as having little impact. Among them is steel group Corus, which supplies body panels from its centre at Wednesfield.

"The steel that the centre supplies is not a significant quantity for a company of Corus's size," a spokeswoman said.

The company that receives the steel from Wednesfield for the 206, Ogihara at Telford, refused to comment yesterday.