Industry News: February 2000

By Robert M. Hausman

Colt’s Cuts Handgun Line, City Suit Fails – UPS Rates Up

In a flurry of activity during the early autumn, a trio of developments occurred greatly affecting the sale of firearms in the future.

First, Colt’s Manufacturing Co., one of the oldest names in American gundom, announced in early October it will discontinue the major portion of its handgun product line. Second, one of the suits in the recent wave of municipal lawsuits against the shooting sports industry has been dismissed, giving a resounding victory to the industry. And third, United Parcel Service, the major land common carrier for the firearms industry, has announced all handgun shipments must now be delivered by air, greatly increasing shipping costs of handgun makers and distributors.

Let’s begin with Colt’s. In an October 5, 1999 dated letter to the company’s distributors obtained by Small Arms Review, Thomas H. Kilby, vp/marketing & sales, announced Colt’s “will accept no new orders” for the following products:

•Magnum Carry .357 Mag. snub nose revolver

•DS II .38 Special snub nose revolver

•Python Elite .357 Magnum revolver

•Anaconda .44 Magnum revolver

•.380 ACP pistols (models 06891 and DS6891)

•The new Pocket Nine 9mm compact pistol

•The 1991 family of 1911A1 style auto pistols (models 01991, 04691, 09091, 01091, 0409IU, and 09191U). A Colt’s spokesman notes this entry is in error, and that in fact the 1991 series will be continued.

•All standard model variations within the above listed products are also Discontinued.

Colt’s will continue to manufacture the following handgun models:

•Single Action Army series

•Cowboy single action revolvers

•Model O series, including the new model XS, Defender and Custom .45’s

Despite the product discontinuances, Colt will still have 35 separate models within its handgun lineup, keeping it as a viable manufacturer within the handgun arena.

Kilby’s letter takes note of the rumors circulating in recent months, regarding Colt’s possible withdrawal from the civilian handgun market. In explaining the reasoning behind the consolidation, the letter reads, “In developing our 2000 business plans and identifying strategic needs beyond 2000, we have had to face the harsh reality of the significant impact our litigation defense costs are having on our ability to operate competitively in the marketplace. Accordingly, we have made the decision to consolidate our product lines.”

While instantly creating collector’s items of the discontinued models sure to rise in value as word of Colt’s decision reaches the public, prices of those handguns still in production are being raised by the factory as well.

“Due to the continued escalation of our litigation costs, coupled with our strong desire to maintain a meaningful presence in the handgun segment of the business, the prices of (existing) products will be increased by 6%, effective immediately.

“Our marketing objective,” Kilby’s letter continues, “is to streamline our handgun product line into a smaller, but higher value collection of real Colt ‘Classics,’ which best represent our brand, with much more emphasis on providing custom features and custom appearance for serious gun enthusiasts. We are committed to taking a ‘Classic’ approach to the future development of our product lines and plan to focus more on what we have been best known for and done best for the past 164 years.”

Colt’s Match Target rifles, its new Colt Light Rifle bolt action line and its military products are unaffected by the streamlining decision.

A Colt’s spokesman (who requested anonymity) said the firm is, “rationalizing our product line based on sales expectations and demand. Part of the decision was based on the poor sales projections for some models, more than concerns over litigation.” The spokesman would not comment on whether any of Colt’s approximately 800 employees would be laid off as a result of the line consolidation.

New Colt CEO

In a related development, Steve Sliwa, appointed chief executive at Colt’s only about a year ago, is stepping down from his position. Sliwa will head up a new venture, to be known as “iColt,” which will work on developing and marketing Colt’s user-recognition handgun technology often called a “Smart Gun.” By spinning off iColt as a separate entity, Colt’s may be able to distance itself from the “Smart Gun” controversy, which has generated ill-feelings against the gunmaker by some firearms rights activists, who fear the firearm user-recognition technology may be legislatively mandated for use on all guns.

The problem is there are numerous firms developing such devices. Many of the prototypes developed thus far are based on the technology employed in the keyless entry systems built into better automobiles. So the technology itself is already here, it is the reliable application of it to firearms that has not yet been perfected. If Colt’s gets there first with a viable system, it will have a leg up on the competition.

As this issue of Small Arms Review goes to press, SIG Arms, Inc. has announced it has developed and is ready to market a workable electro-mechanical user-recognition system for one of its handgun models. However, the technology employed in the SIG product appears to be different from that used by Colt’s.

Retired US Army General William Keys, a Colt’s board member, has taken over the helm of Colt’s Manufacturing’s daily operations as the new chief executive.

Handguns reportedly account for about 30% of Colt’s revenues, but a much larger share of the profit. In December 1998, Colt’s completed the acquisition of Saco Defense Corp., of Saco, ME, a producer of military arms and bolt action hunting rifles. During 1998, Colt’s and Saco Defense reportedly had a combined revenue of $136 million and an operating profit of $13.4 million.

“While some firearms firms will see slight increases in their insurance premiums as well as higher deductibles in their policy proposals next year. Overall liability premiums are not expected to rise significantly next year,” says Bob Chiarello of Joseph Chiarello & Co., Inc. of Elizabeth, New Jersey, a broker of much of the insurance for the firearms industry. “The insurance companies overall feel the industry is being defended in the suits by competent attorneys and recognize the suits are a reach for the municipalities involved. Defense costs, in most cases, will continue to be paid for by the insurance companies,” he detailed.

Unfounded Rumors

There have been industry rumors circulating to the effect that other handgun makers, particularly Smith & Wesson and Glock, Inc. are planning to get out of the civilian handgun market or will curtail production for sale to consumers.

Glock, Inc.’s corporate legal counsel, Paul Januzzo, denied any move by his company to curtail consumer sales. He noted his company was actually experiencing lower liability insurance costs at present than it had faced several years ago.

“There is no truth to the rumors to that we are getting out of the civilian handgun market. Such sales are our bread and butter,” declared Chris Killoy, Smith & Wesson’s vp/consumer products. “While we are looking at a possible increase in our liability costs, we are definitely not backing away from the consumer market.”

UPS’ New Handgun Rules

In an unrelated move, but one having wide impact on the marketing of handguns, United Parcel Service (UPS) the firearms industry’s common carrier of choice, announced in early October that all handgun shipments will no longer go through the company’s ground transport network, but will have to be shipped by air. The decision will raise handgun manufacturer and distributor handling costs significantly.

In a statement distributed to the media, UPS says, “As a responsible corporate citizen, UPS wants to ensure handguns are transported as safely as possible by restricting handguns to designated handling channels. Effective October 11, handguns may only be shipped via UPS Next Day Air. We will continue to accept handgun shipments but all packages containing handguns must be segregated from other packages.”

Industry Seeks Alternative

Reaction from the firearms industry was swift. Richard Lipsey, owner of Lipsey’s, Inc., a major shooting sports wholesaler located in Baton Rouge, Louisiana, minced no words when he commented, “Their (UPS’) decision stinks and is a very poor excuse for them in not being able to control theft by their own employees. They ought to clean up their own act first before trying to shift the blame to someone else. They said their decision is ‘part of their social responsibility,’ but it just irks me that they are just not taking responsibility for their own actions. Consumers should be aggravated as hell about this.”

Not all manufacturers will be adversely affected by UPS’ move. For instance, Smith & Wesson’s Chris Killoy said his firm does little business with UPS as it usually ships out product in large quantities to its wholesalers via land freight companies. By contrast, Glock, Inc., which uses UPS heavily, is apparently not that upset by the UPS decision. “They cannot get a handle on their employee theft problem, so you really can’t blame them for their decision,” says corporate counsel Januzzo.

Brian Tucker, president of Davidson’s, Inc. another major firearms wholesaler headquartered in Prescott, Arizona, said he is in favor of anything that, “helps to keep guns out of the hands of criminals.” On the other hand, he admitted paying overnight air shipping rates is likely to have a detrimental effect on gun sales and said RPS, Inc. is emerging as the most viable alternative carrier for the firearms industry, in place of UPS.

A call to RPS confirmed the company is considering becoming a rival to UPS for the firearms industry’s business. “We currently handle very few handgun shipments, but in light of UPS’ change in policy and the potential increase in demand for alternative services, we are taking a very close look at the firearms market,” revealed Betsy Momich, the company’s public relations coordinator.

“About 95% of our shipments are transported to their destinations by ground in 2 to 5 days. If the package is traveling within the same region, it is usually delivered overnight. We have 369 facilities in all 50 states and Canada and are UPS’ primary competitor,” Momich disclosed.

Cincinnati Suit Dismissed

In a decision of wide import, a suit brought by the City of Cincinnati, Ohio against the firearms industry has been dismissed. The suit was part of the recent wave of lawsuits by states and municipalities alleging negligent firearms marketing and distribution practices.

The suit, City Of Cincinnati vs. Beretta U.S.A. Corp., et al, in which 11 other manufacturers, one distributor and three firearms industry trade associations were named as co-defendants, was “dismissed with prejudice” (meaning it will be very difficult for the city to file a future action).

Cincinnati (in a manner similar to the other suits which are still pending) sought to recover for “costs incurred in providing police, emergency, court, prison and other related services in connection with shootings which occur in Cincinnati, regardless of whether those shootings were homicidal, suicidal or accidental.” The city further sought damages for alleged “diminution of property value and loss of tax payer revenue, punitive damages and preliminary and permanent injunctive relief” which would have required the defendants to change the methods by which they design, distribute and advertise their products.

In the view of the court, the city’s complaint was, “An improper attempt to have the court substitute its judgment for that of the legislature.” Something the court said it was “not inclined, nor empowered to do. Only the legislature has the power to engage in this type of regulation.”

In regard to the city’s claim that the firearms industry’s activities are a “public nuisance,” the court said nuisance laws, “do not apply to the design, manufacture and distribution of a lawful product.”

The court also quashed the city’s contention that firearms had no value in self-defense. The complaint had alleged the gun industry had committed fraud by asserting that keeping a firearm in the home increases home safety and security. Such an assertion, the court found, “is merely a statement of opinion of future events which does not constitute fraud under Ohio law. Indeed, the statement can be simply construed to reflect that which is set forth under the Ohio Constitution and the laws of the state of Ohio, which recognize the legitimate use of firearms for self-defense.”

As to one of the city’s more outrageous claims, for recovery of costs related to police, emergency, court and prison services, the court said these expenses arose out of the city’s “duties to its citizens,” and could not be recovered.