Colt files for bankruptcy
On June 15, 2015, Colt Defense filed for bankruptcy protection under Chapter 11. How can that possibly be?
In Dwight Eisenhower’s Farewell Address, he warned the Nation of the growing influence of a vast “Military Industrial Complex.” In the next decade plus, 2,709,918 Americans served in Vietnam, witnessing astronomical amounts of ordnance dumped on the Southeast Asian jungles, the manufacture of which made many in the Military Industrial Complex obscenely rich.
Most of the troops were issued M-16 Rifles, provided by Colt, presumably one of the members of the complex that reaped the benefits.
According to Bloomberg, Colt lost the military contract to provide the standard issue M4 (that procurement went to Fabrique Nationale Herstal USA) in 2013. Since then, only 7% of Colt’s business goes to military contracts. That means 93% of their business is dedicated to servicing the civilian and law enforcement markets.
Okay, let’s consider that: After the Sandy Hook Massacre, guns sales skyrocketed due to murmurings of increased gun control measures. The most popular weapon flying off the shelves was the AR15 – the civilian version of M16, missing the fully-automatic fire-selection. So Colt should be rolling in the dough, right? After all, that’s 93% of their market.
According to Bloomberg:
In 2009 and 2010, meanwhile, Colt somehow missed out on the "Obama surge," a run of strong civilian gun sales prompted by fears whipped up by the National Rifle Association that the Democratic president would stiffen federal gun control. The panic-based buying that lifted the small arms industry has now eased, making it even more difficult for Colt to move the military-style semiautomatic rifles it had hoped would be its salvation. "The industry's recent rapid growth is expected to slow over the next five years, increasing at a more modest average annual rate of 4.1 percent," according to the research firm Ibisworld.
(*Author’s Note: The NRA, of which this Writer is not a member, did not whip up fears. The Obama administration was very vocal in their intention to “stiffen” gun control efforts in the wake of Sandy Hook, which was preceded by their incompetent attempt to fabricate the illusion of Mexican drug cartels being armed with American weapons via the bollixed “Fast and Furious” imbroglio, as a pretext for the imposition of stiffer gun laws. Americans who responded by stockpiling weapons and ammo were not led-by-the-nose by the NRA or any other lobbying organization: They rationally perceived the writing on the wall.)
In Colt’s defense, Bloomberg mentioned that the firearms industry is traditionally a volatile market, pointing out that were it not for the Civil War, Samuel Colt himself would have faced dire financial straits. On the other hand, stock market reports for Sturm Ruger and Smith and Wesson show that they’re faring well. It is possible then for a contemporary firearms manufacturer to prosper in the current environment.
So the Civil War bailed out Sam. Why haven’t our Mideast nation-building expeditions bailed out Sam’s progeny?
[T]he main reason the company hasn't weathered rocky market conditions since the winding down of the wars in Iraq and Afghanistan is that the New York financiers who control the company borrowed too much and paid themselves lavishly…
[T]he private equity firm Sciens Capital and its affiliates loaded Colt with debt since the mid-2000s while taking cash out in the form of "distributions" and "advisory fees."
So those who control the company were gorging themselves on the eggs before they hatched. But what about: “Colt somehow missed out on the ‘Obama surge?’” That’s not rocket science either. Colt no longer corners the market on their signature products: 1911 model .45 cal. pistols and AR15 (M16) family rifles. There are myriad manufacturers of those types of weapons competing for those customers. It’s only the firearms snobs that insist on paying several hundred dollars more to get the trademark Colt pony, rearing up, stamped on the side of the receiver.
A Remington 1911 retails at $730. Ruger runs at $860. Colt $880. Auto Ordnance (Thompson) $ 590. Rock Island $460. They’re all the same pistol. $880 minus $460 equals $420 difference. Colt AR15 Rifle $1136. Bushmaster AR15 $1099. CMMG AR15 $790. Smith & Wesson $540. Colt @ $1136 minus S&W @ $540 equals $596, just to have the pony stamped on it. They’re the same weapon.
That’s how Colt somehow missed the “Obama surge.” Fabrique Nationale won the military contract for M4 Carbines solely because they under-bid Colt and Remington. Colt has priced themselves out of the market for the products they introduced, and their executives have bought their yachts and mansions based on the misconception that the legacy of their brand would carry them.
If they want to survive, they’re going to have to learn how to compete.
Nobody wants America’s most renowned firearms manufacturer to go the way of the dinosaur. But somebody in Harford, Connecticut needs to extract their projectile from their breech.
Mike VanOuse is a Factoryjack from Indiana and can be reached at email@example.com