Although the company seemed to disappear overnight, I'd suggest Gardner's story is actually one of slow decline, rather than sudden collapse. The spiral if decline really began in the 1970s.
Gardner built its reputation on quality - reliability, durability and fuel frugality. Essentially however the engines were hand-assembled, with tolerances individually adjusted on the shop floor. Gardner's long-standing reputation for durability was built on the back of lightly-stressed components.
The world of diesel engines and customer expectations were changing however, with a move towards increased performance from lighter units. Ultimately Gardner (like much of the UK's automotive industry) was slow to react to a changing market. It continued to have a loyal customer base, but didn't have the financial resources to invest in the level of R&D needed to keep up with changing technologies.
Elsewhere computer technology and manufacturing were increasingly coming to the fore. Gardner was initially able to keep up with the pack by increasing the maximum governed speed of its engines (increasing rpm to deliver more horsepower) but this added more stress on the units (with a knock on effect on Gardner's reputation for bullet proof durability and engine longevity).
Turbocharging was added to deliver additional power whilst keeping fuel efficiency competitive, but ultimately the company didn't have the resources to develop the next generation of engines needed to match it's competitors.
Even in the mid 1970s Gardner engines were still essentially hand-built and so margins on new engine building were paper thin. After the sale to Hawker Siddley in 1977 the company had sufficient financial backing to develop a wholly new engine (the 15.5 ltr 6LYT) and rework its existing offering (12.7 ltr version derived from the 6LX). But unfortunately, especially in truck applications the new engines were less reliable - which somewhat tarnished the firm's reputation, so customer loyalty started to decline slightly.
Generally however Gardner remained well-regarded, but traditional manufacturer with a loyal customer base, particularly in the bus world. Manufacturing engines for the bus industry wasn't viable on its own and Gardner market share had declined in other applications (for example in the truck world where companies like ERF, Foden or Seddon Atkinson were struggling).
By the time of Gardner's sale from Hawker Siddley to Perkins in 1986 the company was probably making only a few hundred new units a year (more money being made in the reconditioning of existing engines). Gardner was Hawker Siddley's only automotive engine builder, but under Perkins ownership it would be but one - and the smallest - such division. Perkins already manufactured engines in direct competition with Gardner.
For bus applications the updated 12.7 ltr engine (renamed the LG1200 - developed jointly with Perkins) was actually quite reliable and well-regarded, but that market was quite small. Bus sales were already in decline in the run-up to deregulation - and of course the minibuses then in vogue certainly weren't Gardner powered!! Effectively Gardner had primarily become a manufacturer of bus engines at a time when it's main offering was a 12.7 ltr engine but the bus world was moving to smaller lighter units. In bus applications Cummins already had the ubiquitous L10 which was smaller and had developed the B-series for lighter applications. Meanwhile Volvo could took advantage by offering its own 9.6 ltr engines in the Olympian. Not surprisingly Perkins looked to offload the company.
The writing was on the wall for Gardner - it didn't have the products the market now desired and didn't have the resources to develop new engines itself. Nor, did it manufacture at the volumes that would warrant the necessary investment.
