Many major original equipment manufacturers can't seem to decide which works best, producing plastic components in-house or buying them from custom processors.
The past decade has seen automakers furiously outsource work and sell or spin off their captive parts-making operations. General Motors Corp.'s Delphi Automotive Systems and Ford Motor Co.'s Visteon Automotive Systems are prime examples.
But the soft drink industry has taken the opposite approach. Coca-Cola Co.'s bottlers have led the charge to move PET bottle making in-house, and today are among the largest U.S. blow molders.
Custom suppliers that once dominated the industry have survived. But they've had to scramble for new customers and develop markets to stay intact.
The PET market isn't difficult to enter, said beverage analyst Skip Carpenter, vice president of Donaldson Lufkin & Jenrette Inc. in New York, noting that ``glass and aluminum are more intensive'' because of capital demands.
And machinery suppliers like Husky Injection Molding Systems Ltd. and Groupe Sidel have taken the mystery out of PET production with super-efficient, easy-to-use equipment to make preforms and bottles.
Low resin prices also have fueled the trend.
``I would like to see what happens when resin prices go up,'' said packaging analyst Joel Tiss of Lehman Bros. in New York. ``Even at these resin prices, plastic is more expensive than a bottle, and a bottle is more expensive than a can.''
But a huge part of the equation has been consolidation among soft drink bottlers themselves.
Coca-Cola owns about 40 percent of its largest bottler, Coca-Cola Enterprises of Atlanta, a voracious acquirer.
At present, CCE produces 70 percent of the domestic bottle-and-can volume of Coca-Cola brands, said DLJ's Carpenter. ``In the next five to seven [years], that may get to 90 percent of volume,'' he said.
Coke's remaining 104 independent bottlers may be forced to sell to CCE, Carpenter said.
CCE admits to holding ``more than 65 percent of Coca-Cola Co.'s bottle and can volume in North America,'' spokeswoman Laura Asman said.
CCE buys plastic bottles in the United States from manufacturers jointly owned by CCE and other Coca-Cola bottlers, according to Securities and Exchange Commission filings. CCE ``believes that ownership interests in certain suppliers and the self-manufacture of certain packages serve to reduce or manage costs.''
Within Coca-Cola's world, packaging is a small piece of the total picture, Tiss said.
But while PET is moving toward captive production, he pointed out that in the packaging industry overall, container production has ``been going the other direction for 20 years.''
Only 10 percent of the food-can industry is in-house, he said.
Crown Cork & Seal Co. Inc. of Philadelphia, Schmalbach-Lubeca AG of Ratingen, Germany, and Ball Corp. of Muncie, Ind., are leading nonaffiliated makers of PET soft drink containers.
Shelly Steele, marketing director of the Schmalbach-Lubeca Plastic Containers unit in Manchester, Mich., said CCE's transition to captive bottle making ``wasn't a surprise.'' The bottler came out with plans early on, so suppliers had time to react.
It's ``pretty much a question of these systems becoming much more efficient and being able to do the same job with controlled resources. Coca-Cola Enterprises would be a prime example,'' said Joan Holleran, editor of Beverage Industry magazine in Northbrook, Ill.
``Beverage consumption has not warranted fewer bottlers,'' Holleran noted. ``It is just economy of scale that has driven the trend toward consolidation.''
Now, Pepsi-Cola Co. is going to a similar system with a separate structure for bottling operations, Holleran said.
In the Pepsi camp, Whitman Corp. of Rolling Meadows, Ill., is making major moves. Whitman focuses on the soft drink industry through its principal unit, Pepsi-Cola General Bottlers, the brand's largest independent.
General Bottlers has 12 percent of Pepsi's domestic business, with its production and distribution in 12 states in the central United States. That could go to 16-18 percent, Carpenter said. Whitman also distributes in Poland, Russia, Latvia, Lithuania and Estonia.