Michael Harrison's Outlook: Is Green a great retailer or just a clever trader? We'll find out soon

Sir Philip Green, it is fair to say, is not everyone's cup of tea. Which is why there will have been plenty of schadenfreude yesterday at his fall from grace. However you dress it up and whatever excuses you make, the figures from his Bhs chain were dire. His money may have bought him a kiss from Kate Moss and his services to retailing may have brought him a gong. But neither was enough to prevent a truly horrible performance from one half of the Green high-street empire (the other half, the Topshop to Dorothy Perkins fashion chain Arcadia, reports its results in three weeks).

Like-for-like sales were down 7 per cent, profits were down by more than a half and, worst of all, there was no dividend to pay into his wife's offshore account. Green says it is not the end of the world, and he is right there. Every retailer is allowed at least one bad year, and this is the first blip Bhs has had in its seven years of Green ownership.

What must be painful, however, is the fact that it has coincided with a renaissance elsewhere. His old adversary, Stuart Rose, is riding high at Marks & Spencer, with a recovery programme which has lifted the share price by £3 and left it 60 per cent above the level of Green's opportunistic bid two years ago.

But it is not just M&S which has shown Bhs a clean pair of heels. Primark is on the rampage too, having doubled in size, Debenhams is driving hard and, as if that were not enough, there is the ever-present threat of George at Asda and Tesco. In other words, Bhs is being squeezed by the discounters below it and the more upmarket retailers above.

Green puts a large amount of the problem down to mistakes in womenswear. He entrusted the buying decisions to a new team, and they got it wrong, with the result that Bhs had to discount savagely to shift stock. A third of the fall in profits can be explained by markdowns. A new team has now been installed, with Green at the helm, and the benefits are showing through in the shape of improved sales and margins. He is, he says, working 16 hours a day to fix the business.

But there is a bigger structural problem in that Bhs is competing in an overall market which is growing only very slowly and where there is massive price deflation and cost inflation. Because it is being run on a strict Green diet, there is little if any fat to trim from Bhs. That means the only way profits will improve is from top-line sales growth, and that is a tall order in the present environment. It will also require investment in the brand - something which Green has pledged to do, with plans for a nationwide roll-out of a new format and five further store openings in the next 12 months.

Is Bhs a busted flush? It would be madness to write Green off after one set of poor results, which were flagged a long way in advance - even if they turned out to be worse than forecast. But it is hard to see how the chain can repeat the amazing run it staged between May 2000, when Green first bought it for just £12m, and 2002, when he claimed its value had risen to £1bn.

Critics claim this remarkable value creation was achieved with the help of smoke and mirrors and fancy financial footwork. Supporters say it was testimony to hard work, attention to detail, cost reductions and efficiency.

Green insists Bhs is not for sale, and nor has it ever been. You have to assume that it would take a fabulous offer for him to relinquish his crown as king of the high street. The next 12 months will test whether Green simply got lucky or whether he really is a great retailer.

Japanese ride to the rescue once more

If you want an example of the vroom and bust economy then look no further than the UK car industry. Half of it, the bit run by the Japanese and the Germans, is booming. The other half, occupied by the legacy manufacturers, is going bust. MG Rover has gone from Birmingham, Jaguar has disappeared from Coventry, and soon Peugeot will vanish from the city too. Ford long since ceased to make cars bearing the blue oval in Britain, and how much longer Vauxhall's Ellesmere Port plant on Merseyside will stagger on before shutting is anyone's guess.

In their place has come a new breed of overseas manufacturers, led by Nissan, Toyota and Honda from Japan and Germany's BMW. They were lured here by low labour costs, the language and an implicit understanding that because Britain was part of the European Union, it would naturally also join the single currency.

They were let down on that last part of the bargain, but they have delivered on their side of the deal, investing more than £6bn over the past two decades. The three Japanese companies now produce more than 800,000 cars here, the vast bulk of them for export to the Continent, while output of the Mini from BMW's Oxford plant is rising to 240,000 a year.

Denied the opportunity to manufacture in the same currency in which they sell most of their product, they have had little choice but to grin and bear it.

The story of all four manufacturers is remarkable, and yesterday Honda wrote another chapter by announcing that it is to expand production still further, adding another shift and an extra 700 jobs to its plant in Swindon.

In some ways the Honda story is the most remarkable of all. Unlike its Japanese and German counterparts, it has never asked for, nor received, a penny of government money for locating in Britain. The £1.33bn invested in Swindon over the past 20 years has all come from Japan. Contrast that with the billions of pounds the taxpayer poured into Rover in all its manifestations over the years in a vain attempt to keep a British car industry alive. Indeed, the money was still going in after the administrators had arrived at Longbridge.

Initially there were fears, and rightly so, that these Japanese plants would never be more than "screwdriver" assembly operations, with all the design, development and intellectual know-how supplied from Tokyo. But the three Japanese manufacturers have gradually built up a design and engineering presence in the UK. The Qashqai, that oddly named cross between a people carrier and a 4x4 which Nissan will start building at Sunderland in December, will be home-grown in every sense, having been designed and developed entirely over here.

Toyota, for its part, now wants to be treated as a "home brand" in the way that MG Rover and Ford once were. And why not? It is heading towards production at Burnaston of 300,000 cars a year, every one of which rolls off the line stamped "Made in the UK". That has not always been something of which we can be proud.

m.harrison@independent.co.uk