Peugeot and BMW have two things in common: they are now the only two European car makers manufacturing in the UK; and they share a new high volume petrol engine.

The interesting open question though, is whether or not that particular engine will ever go into the cars they both make in the UK.

For BMW there is no doubt. The power units will not only go in the Mini within 18 months or so but they will actually be assembled in the UK.

The question for PSA is far more sensitive because the answer requires a guess as to whether the French group remains committed to car assembly in the UK.

At the moment the Coventry assembly plant makes the phenomenally-successful Peugeot 206 in all derivatives except the CC. Five million have been built to date, with volume at Coventry currently annualising at 140,000.

But the 206 is in its seventh year and will be replaced next year by the 207 which will carry the new engine. PSA applied to the British government for regional aid to build the new car but no deal was struck. PSA has since announced a plant at Tranava in Slovakia.

It will have a capacity of 300,000 cars a year.

It looks on the face of it as if this spells the beginning of the end for Ryton except for this: PSA has a very public commitment to build four million cars a year and even with Slovakia on stream it will still be roughly half a million cars short of that. Taking out the UK capacity is therefore irrational.

Short-term, the logic is that the evergreen 206 should be able to survive the arrival of the 207. In PSA's terms there will be quite a pricing gap between the entry-level £7,000 Peugeot 107 and the 207 which will come in at around £10,000.

The 1,800 people at Ryton would not want to bet on being able to keep the 206 going indefinitely. But if 207 demand exceeds the group's expanded capacity then the cost of redeveloping Ryton (principally the substantial cost of a new paint plant) will be reconsidered.

For BMW there is no hesitation about investing further in the UK. The new joint venture engine will be assembled at BMW's existing Hams Hall engine plant at Coleshill in the Midlands. It is needed for the Mini because the contract for supply of the existing engine - built by Chrysler in at Curitiba in Brazil - comes to an end next year.

For BMW, the move means that Mini becomes self-contained in the UK with pressings from Swindon and assembly at Cowley all within 90 minutes of each other.

BMW had the option of having its engines assembled at the same place as Peugeot - at Francaise de Mecanique in Douvrin near Lille, France.

But it prefers the UK. The decision is part based on the preference to have all vital Mini operations in a cluster and part on the good sense of further loading the Hams Hall plant which already makes all BMW's four cylinder petrol engines - currently at the rate of 150,000 a year but with a capacity of 400,000.

Harald Kruger, the plant's managing director, says that there is no question about the UK having a role in engine manufacture. Basic labour rates are not the highest in Europe, labour flexibility and labour skills are the best in the group and the scrap rate is the best for all BMW engine operations. Reliability and flexibility easily offset the 20% labour cost saving that might exist for them in Eastern Europe, and the proximity to the Mini assembly line means that customer preference for late changes of engine specification can easily be accommodated.

BMW is so certain that Hams Hall give them a competitive advantage that if PSA were to build 207 in the UK and were to ask for final assembly of the co-op engine in the UK, BMW would have to think very hard indeed about meeting the request.

Rob Golding