After 123 years of trading, Connolly Leather, the supplier of upmarket car interior materials, has closed operations in the US and is in receivership in the UK because of “challenging market conditions” caused by September 11 events.

Receiver KPMG has sent out prospectuses to potential buyers for the firm, which supplies leather for the seats of Rolls-Royce, Bentley, Aston Martin, Jaguar and Ferrari cars, the benches of the House of Lords and Roberts radios.

Analysts say the business could be worth between £6m and £14m. City insiders have tipped Seton, which supplies leather to Saab, Volvo and DaimlerChrysler, as a potential buyer. Connolly, founded in Britain in 1878, says trading conditions had forced closure in the US and blames the terrorist attacks for forcing it to downsize its UK operations.

But the firm was also believed to be under pressure because of consolidation in the car industry and pricing competition. One source told AM that Connolly, which has supplied the upper echelons of the motor industry for the past 100 years had been slowly losing clients. These losses were compounded by the rise of rival leather and leather substitute companies in Italy and Ireland.

“These players are bigger and able to get better volumes of leather through their factories,” says the source. “They have been picking off Connolly's customers for the last 20 years. With the likes of Aston Martin and Jaguar being sold to Ford and Bentley to Volkswagen, they find themselves having to take a more cost conscious approach.”

However, carmakers have already drawn up contingency plans should the firm go under. Bentley, which takes up to 18,000 Connolly hides a year, confirmed it had found an alternative supplier should the leather firm stop trading.

KPMG Corporate Recovery has appointed Richard Heis and Adrian Howlett as joint administrative receivers. But they are confident the business will be sold as a going concern.

KPMG says only the trading side of the business has been put in to receivership and adds that Connolly Leather Limited, the holding company, is “robust” and that there are no plans to put it into receivership. Connolly Leather will continue to trade from its UK sites in Northampton and Kent where it employs 165 people.