Gun Sales and Economics

Posted: September 10, 2012 by ShortTimer in Economics, Government, Guns, Regulation, Second Amendment
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Recently, this little story has been going around, from Drudge to HotAir and across the gun forums of Teh Tubes:

The gun business is booming. The question is, why?

Smith & Wesson stock Friday was zooming, thanks to a stellar earnings report. The firearms maker also boosted its outlook for the rest of the year. Because of the strong business, its backlog of orders more than doubled from the same quarter last year, the company is concentrating on boosting production and building inventory.

“We are underserving the market at this moment, we all know that, and that’s a great opportunity going forward for us,” CEO James Debney said in a conference call with analysts.

And another gun maker, Sturm, Ruger & Co., also hit a milestone of sorts in terms of meeting consumer demand. It produced its one-millionth gun of the year…well ahead of last year’s pace.

“It took us nearly all of 2011 to build one million firearms, but in 2012 we accomplished it on August 15th,” said Ruger President and CEO Mike Fifer in a statement.

What’s driving the demand that has gun makers cranking up production?

Back in 2008, concerns about a leftist administration that would go out and spread lies about American gun owners and Americans’ rights, which then went on to send guns to Mexican drug cartels in order to find the weapons at murder sites and say “see, there, guns are bad, m’kay!”, meant that for the last few years, there has been a lot more interest in firearms.  The government is anti-gun, and peopel buy because of that.  On top of that, folks who panic bought, and folks who were already involved in shooting got into other shooting sports as well.

Big companies like Walmart started carrying modern firearms, and big outdoors-oriented businesses like Cabela’s and Basspro built new stores in order to compete and deliver new products to market.  Returning OIF and OEF veterans wanted their old M16 back, and went out and bought AR15s.  Concealed carry began to be adopted across the country, and guns like the Ruger LCP skyrocketed in popularity.

Numbers of manufactured pistols have gone up for a few years in a row.  The number of .380s in 2011 (573,000) dwarfs that of the number of .380s sold in 2008 (278,000).  While others increased, the numbers for “up to 50″ includes both .40 S&W (a very, popular law enforcement caliber) and .45 ACP (historically also very popular).  ATF figures for individual manufacturers also showed Ruger’s LCP being a major driving force in their increase in sales.

The rise in concealed carry and the associated rise in people taking responsibility for their own safety led to a huge number of purchases of Ruger LCPs.  Anecdotally, I’ve heard gun counter workers talk about selling LCPs 5:1 over any other firearm.  I’ve also shopped at gun counters and watched customer after customer buy them – lending no small amount of credence to the anecdote.

Speculation has focused on fears of a coming regulatory crackdown on gun ownership. Liberal administrations tend to be anti-gun and so, the thinking goes, an Obama re-election would set the stage for stricter gun purchasing requirements. Hence, people are buying now in anticipation of difficulty later.

Yes.  And also no.

Going back a couple paragraphs:

hit a milestone of sorts in terms of meeting consumer demand

Much of the demand was already there.  In 2008, if you wanted an AR15, you were paying $1000 for something cheap.  If you wanted an AK, you’d see them going for $700 on Gunbroker.  Demand was high, supply was low.  If you wanted a .380 concealed carry pistol, the Ruger LCP wasn’t on the market the way it is now, and Kel-Tec’s P3AT (a good pistol itself, which Ruger sought to imitate and improve on) was doing brisk sales.  But as concealed carry became normalized, and as the manufacturers caught up to demand, sales went up.

As more veterans came back from Operation Iraqi Freedom and Operation Enduring Freedom, they wanted their old M16.  Other folks began to see the AR platform as a US standard, and they gained more use in the form of bull-barrel rifles as varmint rifles, and in different calibers as hog guns and even as deer rifles.  Sporting, competition and defense uses for them began to flourish, and as time passed, big companies started getting caught up on production.

For years, getting ahold of something as currently commonplace as a DPMS AR was difficult.  For years, getting a Colt was impossible.  For years, ammunition prices shot up as demand was high and international metals prices skewed ammo prices further.

Now, a few years later, Remington is putting out an AR, Ruger is putting out an AR, SigSauer is putting out an AR, S&W is putting out an AR (and an AR in .22 LR that’s very popular as well) – and many of these rifles are even hitting the shelves of the world’s largest retailer.

That’s a Sig M400 Enhanced at Walmart.  Note it’s sitting next to two more ARs – if I recall correctly, one’s a DPMS optic-ready rifle, the other a Bushmaster optic-ready carbine.

The motivation behind the rush could be key to how long the gun makers enjoy the surge in business. Fears of overregulation could dissipate rapidly after the current election season is over, since there was no major change to gun regulations after Obama was elected the first time. Indeed, one analyst downgraded Smith & Wesson [SWHC  10.07    1.07  (+11.89%)   ] and Ruger [RGR  46.84    0.12  (+0.26%)   ] stock last month, citing fears that their torrid sales pace this year is unsustainable.

Not all analysts agree, however.

“We think there is broader drivers, broader acceptance of the use of guns and more target shooting,” said Cai Von Rumohr, an analyst with Cowen & Co., also appearing on CNBC. “So we think it’s more than just safety and more than just fear of not being able to buy guns.”

A quick rush is also on concerns that a lame-duck Obama will simply pass whatever regulations he chooses.

The ATF is currently ignoring that pesky constitution in order to do more “asset forfeiture”, wherein a person’s property can be seized while the person is left alone.

The Obama administration is making it easier for bureaucrats to take away guns without offering the accused any realistic due process. In a final rule published last week, the Justice Department granted the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) authority to “seize and administratively forfeit property involved in controlled-substance abuses.” That means government can grab firearms and other property from someone who has never been convicted or even charged with any crime.

It’s a dangerous extension of the civil-forfeiture doctrine, a surreal legal fiction in which the seized property — not a person — is put on trial. This allows prosecutors to dispense with pesky constitutional rights, which conveniently don’t apply to inanimate objects. In this looking-glass world, the owner is effectively guilty until proved innocent and has the burden of proving otherwise. Anyone falsely accused will never see his property again unless he succeeds in an expensive uphill legal battle.

But the broader driver is simply that demand has been high for several years now – not just since Obama (though his anti-gun administration has certainly helped), but also before.  Manufacturers are just now catching up supply to demand.

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