Two pieces of welcome news have improved prospects for the Midlands car industry in 2008, writes David Bailey, of Birmingham Business School.

Shanghai Auto's purchase of Nanjing's car operations has been prompted by the Chinese government rightly banging heads together to make a go of the MG brand and to consolidate a fragmented industry in China.

While Nanjing beat Shanghai in the bidding for MG Rover's assets back in 2005, it is a small firm and never really had the resources to invest in the brand and to develop new models.

Its joint venture in China with Fiat has not gone well and the firm has never successfully developed a new model and brought it to market. Indeed, progress since 2005 has been painfully slow.

Shanghai was always the better bet for reviving MG given its size and ability to generate cash, as the unions rightly pointed out at the time.

Things now look more positive for an MG revival at Longbridge. This was the firm which should have taken over MG in the first place.

It won't be an easy ride at all given the old model line-up based on the old MGTF and Rover 75, but MG still has some brand value and can be resurrected if attractive new models are developed quickly.

On this there is a real chance to bring R&D back to the West Midlands. After it bought MG Rover's intellectual property rights in late 2004, Shanghai continued to develop the replacement for the R45 through its joint venture with Ricardo here in the West Midlands.

This is now well advanced and an MGbadged version could be produced both in China and at Longbridge. A replacement for the MG TF is the next priority and Ricardo could again be a key partner here.

Meanwhile, Ford's announcement that Tata is the preferred bidder for Jaguar and Land Rover comes as no surprise and is also welcome.

Tata is a huge conglomerate with a turnover of nearly $22 billion. Its deep pockets have allowed it to outbid rivals constrained by the recent credit crunch.

Ford are flogging off assets after a record $12 billion loss in 2006 and a downward spiral of sales of gas-guzzling SUVs and pick-up trucks in the US prompted by the price of oil - now at or near an eye-watering $100 a barrel.

As much as half of the Premier Auto Group's losses over the last three years could be down to exchange rates.

This was made worse by Ford's inability to understand the European prestige car market and its unwillingness to put diesel engines in Jaguars for some 15 years.

This was a commercial disaster and whilst Jaguar stalled, other prestige producers cashed in. Ford belatedly got it right and did finally get diesels into Jags back a couple of years ago.

Yet sales still lagged owing to fussy, oldfashioned styling and too obvious links with the Ford platforms underpinning recent Jags, like the disappointing Mondeo-based X-type.

That has finally changed with the stunning XK sports car which is selling well, and the dramatic new XF which replaces the Christmas pudding-esque S-type.

New XJ and X-types, the latter finally selling well in new emerging markets like Russia, would complete the current line-up's make-over.

So, Jaguar's direction of travel is looking good and Land Rover is doing well with a range of profitable new models, although quality still needs to improve further. Jaguar's losses are coming down and profits are within reach.

Overall, Tata is coming in as owner at a good time. It is likely to continue the strategy of selling fewer Jaguars but at a higher premium, and to extend Land Rover's model range, for example with a new compact Range Rover.

What's more, Tata offers the best bet hope for British workers in a number of ways.

Investment needs for new model development are very high, in the range of £400 million to a billion to bring a genuinely new model to market.

A long-term perspective is required, and a private equity purchase of Jaguar/Land Rover could well have led to the closure of one plant in Britain and significant job losses, as the owner would have looked to cut costs drastically and split the companies up.

In contrast, a longer-term perspective from Tata could allow an X-type model replacement to be developed which could offer the prospect of keeping open the three UK plants.

Replacing the X-type is crucial in this respect, and Tata's extensive links with Fiat open the way for a joint venture based on a shared platform with Alfa Romeo.

Fiat's boss Sergio Marchione has already indicated that they are open to such a deal.