The turmoil in the automotive sector has made the West Midlands the most difficult place in England to run a business with the number of companies in trouble more than doubling over the past 12 months.
According to business recovery specialists Begbies Traynor, the number of companies facing critical problems in the region had soared 111 per cent in the last year because of the credit crunch and the subsequent economic downturn.
And its Red Flag Alert report warned of a longer and deeper recession to come as the credit crunch continues to bite.
In the West Midlands the number of companies facing “critical” problems in December was 159, compared to 93 in the same month of 2007. The equivalent for “significant” problems was 4,901 (compared to 3,208). The monthly average was up slightly more than 111 per cent.
This was much higher than the national rise of 82 per cent and was the highest figure in England, although Scotland as a region saw a slightly higher rise.
John Kelly, a partner in the Birmingham office of Begbies Traynor, said: “It does not surprise me that the West Midlands is up there with Scotland as the worst affected.
“We are being hurt by the uncertainty in the auto sector – the likes of Jaguar Land Rover, JCB and LDV are almost putting production on hold. And that stops them from buying from suppliers. Suppliers cannot survive with two month of no sales and no certainty of when these orders will return.
“Construction is also in trouble. Look at all the development around Birmingham– the cost of completing some of these schemes is now more than they are worth such is the fall in values. And on the commercial side speculative development has stopped because of the Government’s legislation on rates liability for vacant premises.”
The Red Flag survey measures corporate distress signals such as county court judgments, analysing companies facing either significant or critical challenges.
It comes on the back of a host of surveys and statistics showing marked declines in business activity and confidence along with growing unemployment.
But there were some positive indications in the report – businesses looking for bargains are showing more signs of buying while the rate of increase among firms getting into difficulty has slowed.
Begbies claims the survey shows seasonal influence on court actions tends to reduce the number of companies receiving judgments in the run-up to Christmas but cautioned this was expected to be counteracted during the first quarter of this year.
The latest figures for companies facing “critical” problems showed the overall increase for all regions was 82 per cent in the last quarter of 2008, compared to 477 per cent in Q3.
A total of 1,811 companies were facing these critical problems – county court judgments totalling £5,000 or more or winding-up petition related actions – in December compared to 1,242 in the same month of 2007.
There were 62,134 with significant problems – those with either a court action or issues with their accounts – against 38,943 in 2007.
The worst-affected sectors in the last quarter were advertising, with a yearly rise in problems of 191 per cent; construction (190 per cent); transport and communications (170 per cent) and recruitment (170 per cent).