Learning lessons from Derby
The following week there was an article in The Economist with a feature on Rolls-Royce and Derby, which concluded that Derby could be a vision for Britain PLC. I'm not being complacent. There are some really tough challenges.
What I want to look at is the state of play – basically how things are at the moment. I then want to discuss those two politically-toxic words – green shoots. Are any of you seeing anything positive out there or any chinks of light in the various sectors? And finally, how can we position ourselves for the upturn?
The upturn will come, but what should business do in the next year or two to take advantage? If I can turn to you Gerry. You're involved in the Institute of Directors and the CBI. Can you give us a broader take on how things are at the moment?
GERRY BEETLES: Generally, the IoD is taking a relatively positive attitude on this. But we're not sure whether things have bottomed out yet. For the last 10 to 15 years the consumer has kept the economy going – but now they are reluctant to spend.
The question is how do we get them spending again? The root of the problem is to do with the banking sector.
JF: What about your individual business, Gerry?
GB: My company, Davis Derby, manufactures mining equipment and some of our key markets are Russia and Kazakhstan. We also supply forklift trucks to companies in the UK and the rest of Europe. The UK market has suffered, but we are still relatively strong in the rest of Europe.
The weak pound against the euro is helping our exports. We've got a very strong order book. But so much depends on companies realigning their business to meet with the changing times.
MARTIN JINKS: Working as a business lawyer, I deal with a number of different companies. My assessment is that things are patchy. There are some areas where confidence is low and orders are low. Construction, for example, is going through a lot of pain at the moment. However, there are businesses that are not as dependent on confidence who are quietly getting on.
ANDY NOTON: The main problem we're suffering from is confidence in the market and the lack of finance available, especially to first time buyers. This has really stifled the market.
However, on the positive side, the interest levels, in terms of people visiting sites, in the last quarter and the first month of this year have been very good. There are signs that people are interested. But first time buyers need a decent loan rate – and one where they don't need to put down a 15% deposit.
JF: How many houses did you build two years ago compared with how many you expect to build this year?
AN: We built about 600 two years ago. This year we'll build 250. That reflects the level of shrinkage in the market.
ANDREW MURFIN: What effect has the Government loan guarantee scheme had on everyone's businesses? Gordon and Alistair say that tens of billions have been made available. They've told people that its been made available but what infrastructure has been put in place?
AN: Until the banking sector is confident in itself, lending will continue to be restricted. A loan guarantee helps but I feel the banks are not comfortable.
STEVE HALL: There are some positive signs. Mortgage lending was up 27% in December, compared to November. Admittedly, we're not talking massive amounts but it shows things are moving in a better direction. We recently spoke to Chris Brown in his capacity as president of the National Association of Estate Agents and he said things were starting to improve.
AN: You can always tell things are getting better by the level of footfall. Our levels for January were higher than predicted. Houses are more affordable now – with the cost of buying compared to renting falling into line. There does seem to be demand. We just need the catalyst of finance to turn this interest into sales.
SH: Things do appear grim when a company announces it is laying 500 people off. But putting a negative spin on everything does encourage paralysis. We should not be afraid to shout about those who continue to do well.
JF: In my head I seem to think that the Government said it needed between 200,000 and 300,000 new homes built a year. But they are not being built at the moment. So, once the upturn starts, are we likely to see another boom?
AN: I certainly hope we do not have another boom because it is not helpful. The Baker Report said we needed to build 260,000 homes a year for the next 10 years. Last year under 100,000 were built. I think in the future, banks will adopt a stricter lending criteria, like in the old days.
GB: Are housing prices likely to fall any further, Andy?
AN: Savills predict a further 11% reduction in prices this year. They predict that in 2010 prices will start to rise again.
MICHAEL HALL: How do they know that? Surely, we wont know until it starts happening.
JF: Can the same be said for the commercial property sector, Gary?
GARY WOODWARD: We have seen more people inquiring. But due to the current market, some people are using it to drive for the best bargain. The balance has shifted. But it is horses for courses. Certain sectors are still doing well while others are struggling. Retail was once doing very well, but it has now fallen away a bit. But yields are still quite good.
JF: There are plans for more office space in the city centre, with sites ready to be developed. Are developers waiting for the right time to start?
GW: It's a confidence issue. A number of developers want to hold back on the big developments until they get an idea of who its for and the funding. The holding cost of empty buildings is considerable.
JF: What do you mean by that, Gary?
GW: Once a building is completed, previously you did not always have to start paying rates from day one. Now you have to pay rates. It's a disincentive to build.
MH: I remember more than 30 years ago listening to a radio presenter who said that a strike had shut a salt mine in Siberia. Everyone ended up going out and panic buying salt. I think the media has been reckless in the way it has portrayed everything as being terrible.
GW: It's true that people have been laid off in certain sectors. But there are others where they are strong. New businesses are still moving onto Pride Park. There are certain services that people still want to buy.
JF: So are people still buying luxury jewellery, Michael?
MH: It's more the service we provide. In the downturn, people need things repairing. That said, our sales are strong too. We've just had a weekend where sales were the same as we did before Christmas.
MJ: I don't think that is a one-off. But I think some businesses are reluctant to shout about their successes while others are suffering.
GW: The trouble is, people don't know whether we have hit the bottom yet. If someone says we haven't, then people will hold off with their spending.
JF: Sharon, you started your business during a recession. Are you mad?
SHARON STEVENS-CASH: (laughing) No! But a lot of people have said that to me since we launched in October. It is a case of sink or swim. Businesses have to be adaptable and think on their feet. It is so important to keep promoting yourself. Michael is a good example, because he has recently stepped up his advertising. You can't look too far ahead but, for me, it is all about adjusting to the changing circumstances.
JF: Chris, how has the downturn impacted on Tidy Co?
CHRIS RAINSFORD: Like Gerry we're doing very well. Our work is connected with the rail industry, where there is a lot of new build going on. We've also picked up a huge contract for rolling stock repairs.
But then the other day I saw that Bombardier was laying off 77 people because a supplier could not raise the cash to provide parts to finish some of the trains because of the banking crisis. Banks do not trust each other. I believe the banks have a huge amount of debt that we don't know about. The Government should do more to flush these problems. Our banks are in a dreadful mess.
JF: Andrew, how has all of this impacted on your work at Smith Cooper?
ANDREW DELVE: Our insolvency and corporate recovery guys have noticed a significant upturn in the last three months. But other parts of the business are going the other way. Transactions and finance are less busy.
But human resources are getting more work as firms look at shedding staff. From talking to businesses we have heard many stories about how banks have dealt with them. And there has been some crazy behaviour by banks. In fact, they have been behaving bizarrely.
MJ: I can back that up. Some of my clients are having extra pressure put on them by banks.
AD: My clients say the same. They say the banks are not being honest. They wont accept the blame. If they did, then business would feel more confident in them.
AM: The trouble is that very few bank managers have got the experience of dealing with a situation like this. We have had 15 years of good times during which a lot of people have become fat, dumb and happy. All this has happened so quickly. Banks do not want to make a bad decision. The end result is that they make no decisions.
JF: Are there any lessons that we can take from previous recessions to get us through the next 18 months?
SSC: I think it goes back to adjustment and flexibility. Organisations need to adjust to weather the storm.
MH: Flexibility is important to us. The problem with the big retailers is that for so long they have been built on selling poor-quality goods with high profit margins. The future is in small businesses that can diversify.
JF: I agree partly. But some large companies adapt very well, others are dinosaurs. Despite the recession, people's income in Derbyshire has not changed. People may even have more to spend but still there is panic on the high street.
SH: I feel the Government should take a stronger role. It should put more pressure on to the banking sector. Until that happens there won't be a change in confidence.
JF: There is a contradictory message. We got into this situation because we spent too much when credit was easy. But now we are being asked to spend to help the economy.
CR: Trouble is, as a nation, we don't save any more.
SH: The Government has promised to accelerate public spending in infrastructure projects. But we have not seen any evidence of this yet. The rail industry particular is waiting for these contracts. Companies such as Bombardier.
JF: If these schemes were about to happen then it would generate confidence. What does everyone think about the VAT cut?
MH: Ludicrous. It just shows how out of touch Gordon Brown is with the economy.
GW: It's been very difficult to administer. There was a very short turnaround time between it being announced and introduced, which caused us some problems.
MJ: They should have left VAT alone and concentrated on the college building programme.
JF: What do we think of the role the media has played in this, particularly the national media. Some blame the media for talking us into a recession. Do you go with this, Steve, or is it a red herring?
SH: There is some truth in it. But on a local level, we have been keen right from the start to promote businesses in Derby through our three-month long Derby Bites Back campaign. This has allowed hundreds of businesses to promote themselves for free and give people an incentive to support them and spend in Derby.
We want to highlight those who are doing well. But it is also important that we get some perspective. When JCB announces 1,000 job cuts and we have a story about a small business doing well, you can see where we're going to go with it.
AD: It's the difference between factual and speculative reporting that's the issue here.
SH: I just don't think the Government has acted quickly enough to help. It is doing little to get in people's faces and say we can help you. There is a whole raft of new legislation being brought in but who qualifies for it? How do they access it? Some of it is very difficult to understand.
JF: So we need tangible help from the Government – not things that will make a good headline.
GW: The Government has stepped in to help the big financial guys – but there are lots of viable businesses out there who have received no help at all. What is happening at ground level to help small businesses? How can they tap into it?
JF: So in terms of the green shoots of the future. Do you think Derby could prove to be more resilient?
GW: I think Derby is reasonably well placed. A lot of planning applications and approvals have been made for new developments. It's now about focusing on that demand. The only shame is the development lag.
MJ: Derby has proven that this country needs a hi-tech manufacturing base that can compete with the rest of the world. The financial sector was once hailed as the driver of the economy but that is no longer the case.
GB: Derby is in good shape. That's not to say that we are going to have it easy. But Derby is in better shape than a lot of other cities.
SSC: Derby's regeneration is also at a good stage. A lot of the major projects have begun. We're also not reliant on the financial sector, unlike Nottingham.
JF: So what should we be doing now in order to take advantage when things improve?
AN: Flexibility is key. For example, we are looking to adjust to the affordable housing sector and are looking to secure funding from the Government for that. We've identified a couple of sites in Derby. We want to keep our subcontractor base in tact. We need to generate work for them.
MJ: I think companies should not be afraid to ask for help. It is good to talk. Looking after suppliers is important.
JF: Bombardier is a good example. They recently bought one of their suppliers. Although I appreciate not everyone can do this.
MJ: But a little help goes a long way.
JF: If we held this debate 18 months ago, would any of us have been able to see this coming?
MH: Some of us did.
AN: I don't think anyone really knew how much trouble the banks were in back then.
AM: Everyone has been caught up in the rapidity – the massive sea change in the global economy. Everyone has been affected in some way. The key is finance and liquidity. Until these are resolved there wont be a recovery.
SH: It's basically been caused by the greed of bankers. But we've all been sucked into it to some extent.
JF: So, to conclude, since the credit crunch first started it impacted on confidence and created the recession. It has resulted in a lack of credit and low confidence. Things are yet to bottom out, but it is not all bad news.
Business needs to change. The Government, banks and the media all have a responsibility to do something about the situation. Locally, Derby may well be in better shape because of its expertise and hi-tech companies. But we can't be complacent. As Martin says, it is good to talk. We're in a cycle, but we will eventually come out of it.
debating society: The movers and shakers of Derby's business world at the Big Talk.
Comment on this story