The unions are protesting about the closure of Ryton. The Chinese are starting production at Longbridge again, but on a fraction of the old scale. MG Rover has gone, Ford-owned Jaguar shut its spiritual home at Browns Lane, Coventry, and GM's sole remaining car production facility in the UK, at Ellesmere Port near Liverpool, has downsized. It's been grim for the UK car industry.

But hang on, the pundits say sagely: all is well with UK cars plc! Britain makes more cars than it did a decade ago, and the Japanese - with their new factories, young workforce and modern attitudes - are to thank. While the old stagers toil and sink, those enlightened Japanese prosper. Nissan's Sunderland plant is Europe's most productive. Sales of UK-made Hondas, including the wacky new Civic, and of Brit-built Toyotas, boom. Nissan, Honda and Toyota are the new Austin, Morris and Rover!

Well, the Japanese have given a huge boost to the UK car industry. The quality of UK-made Nissans, Hondas and Toyotas has shown the world that Britain can make cars as well as the Germans and, er, the Japanese.

So, in manufacturing, Britain is doing well. That's great news for relatively low-paid manufacturing workers, suppliers and the back-up infrastructure. But where the British industry is shrinking is in the design, engineering and development of new cars. This is the "high-value", well paid, advanced, university-educated bit - the model for New Labour's New Britain and essential to a high-cost Western country such as ours. Strong engineering and design is the starting point for all successful long-term operations.

America, Germany, Japan and France - which still have indigenous car industries, rather than ones owned by foreigners - all employ more car engineers and designers than we do. Once upon a time, Rovers, Morrises, MGs, Singers, Hillmans, Austins, Triumphs et al were conceived, designed, engineered, developed and made here. In 2006, UK-built Toyotas, Hondas and most Nissans are conceived, designed, engineered and developed in Japan, with varying levels of "Europeanising" input from Nissan's UK, Honda's German and Toyota's Belgian satellite operations. In a neat reversal, we now provide Asia with relatively low-cost, conveniently located labour.

Look closely, and we see that most UK-built Japanese cars are about as British as the Tokyo subway; Oxford-built Minis are engineered in Germany; Goodwood-built Rolls-Royces are more Bavarian than British; all Vauxhalls are conceived in Germany; and Ryton-built Peugeots have about as much to do with Coventry as the Eiffel Tower.

The only major brand-name cars designed, engineered and manufactured here are made by Jaguar, Land Rover, Aston Martin (all with technological input from owners Ford) and Bentley (with technical assistance from its parent Volkswagen). Of the Japanese, only Nissan - which has made cars here for 20 years - can claim any significant UK engineering input. Much of the latest Micra was conceived in Britain.

Ford, which has operated in Britain for almost 100 years and has been our market leader for 30 years, ceased to make Ford-badged cars here a few years ago and moved its European HQ to Germany. But it is the sole mass producer that still does a substantial part of the "high value" work here, at its Dunton centre.

The key problem, of course, is that there are no sizeable British-owned car companies left. This matters in such an investment intensive and political industry. The Japanese have made a big contribution to car making in the UK and provide thousands of jobs. But when the chips are down or lower-cost East European options beckon, they'll be off.

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