Industry News: July 2000

By Robert Hausman

ATF Releases First Comprehensive Report On Gun Industry

The first comprehensive study of the firearms industry and its regulation, “Commerce in Firearms in the United States,” has been released by the industry’s regulator, the Treasury Department’s Bureau of Alcohol, Tobacco & Firearms (ATF). The report is the first in an annual series that will present and analyze data collected by ATF and other federal agencies relating to the firearms industry and its regulation.

The report traces historical manufacturer sales and production data, size of the firearms industry, export and import information, changes in the regulatory enforcement of federal firearms laws, and efforts to keep firearms out of the hands of criminals, and other information.

Trends

Presently about 4-1/2 million new firearms (excluding machine guns), of which about 2 million are handguns, are sold annually in the US. An estimated 2 million secondhand firearms are sold each year as well.

Domestic firearms production, as well as imports, have been on the upswing over the last fifty-some years, despite an increasing amount of government regulation. In 1947, just over 2 million firearms of all types (excluding machine guns) were produced by U.S. manufacturers. This total climbed steadily in ensuing years, reaching a peak in about 1975 of nearly 6 million guns, dipping down under 5 million in 1980 and climbing again to nearly 6 million in 1982. Indicators show a steep rise to over 5 million in 1993 and 1994 before leveling off at over 4 million in 1998.

Imports during the years of 1947 to 1998, steadily climbed from a tiny amount in 1947 to a peak of nearly 3 million in 1994 before leveling off at under 1 million in 1998. Handguns accounted for about half the imports. Exports have shown much less dramatic results, with the figure staying well under one-half million guns through the years under study. ATF’s National Tracing Center data shows that for fiscal years 1998 and 1999, about 12.9% of traced crime guns were of foreign manufacture.

U.S. annual sales of new firearms surged upward in the early 1990’s, to a peak in 1993 of nearly 8 million firearms, of which 4 million were handguns. A significant part of the increase in overall firearms sales in the period from 1990 to 1993 can be attributed to an increase in handgun sales. The surge in sales was attributed to efforts to purchase handguns before enactment of the Brady Act and the public’s perception of higher crime. Both the violent crime rate and the firearm homicide rate peaked in the early 1990’s.

Handgun Sales

Handgun sales have been steadily on the rise for years. In 1947, only a few hundred thousand new handguns were sold in the US, the report indicates. However, handgun sales have risen steadily through later years, peaking in 1993 and 1994 at over 3 million annually.

Firearm sales per adult are higher today than in the 1950’s and early 1960’s. In fact, sales of handguns per adult are now roughly twice the level of forty years ago. The relative mix of sales between long guns and handguns has changed significantly over time, with handguns accounting for a growing share of total sales.

The handgun share trended up steadily from the late 1940’s, when handguns accounted for about 1 out of every 10 small arms sold, to the early 1990’s, when handguns accounted for roughly half of the sales of small arms. The handgun share has slipped back slightly in recent years, to about 40% of domestic small arms sales.

Industry Size

The Census of Manufacturers for 1997 from the Bureau of the Census shows there were 191 small arms manufacturing companies with combined total product shipments valued at about $1.2 billion. Employment in small arms manufacturing was 9,907 employees with a total payroll of roughly $320 million. By type of product, handguns accounted for about $289 million in shipments; rifles, $373 million; and single-barreled shotguns, $155 million in shipments. The small arms ammunition industry had product shipments valued at $859 million and employment of 6,863.

The selling price of small arms overall increased faster than the price of finished consumer goods for the period of 1948 to 1998. Prices leveled off in the late 1990’s, increasing at about the same rate as prices for other finished consumer goods. For handguns, after a temporary surge in the late-1960’s, producer prices increased relative to other finished consumer goods from the mid-1970’s to the mid-1980’s. During the late 1980’s and early 1990’s, however, prices for handguns rose slightly less than those for other consumer goods, before flattening out in recent years.

FFL-Holder Decline

Major regulation of the firearms industry began over 32 years ago with enactment of the Gun Control of 1968. Congress declared that the law’s purpose was to keep firearms out of the hands of those not legally entitled to possess them, and to assist law enforcement in their efforts to reduce crime and violence. Congress sought to achieve this without placing any unnecessary burden on law-abiding citizens acquiring, possessing or using firearms for lawful activity. The statute was designed to limit the discretion of ATF in denying licenses.

ATF says that while many licensees had a license they didn’t need or use, “others used this relatively anonymous process to obtain a license that was used to purchase large quantities of firearms that were then sold without any records and the licensee would disappear. “

Editor’s note: While it may be a popular misconception that there were a lot of “Kitchen Table Dealers” who were “Getting around the law with an FFL”, the fact is that the ATF did NOT have a set guideline for how many sales in a year made one a “Dealer”. This meant that American citizens who sold a firearm were frequently told by ATF that if they sold one firearm for a profit, they had to have a dealer’s FFL, yet they couldn’t get that FFL to further a collection. It is this editor’s opinion that the massive increase in FFL holders who were not “Active” was due every bit as much to the ATF agents wandering around gun shows handing out the Form 7’s and threatening people who sold a few guns with prosecution for dealing without a license, as it was people trying to expand collections. Now that the Firearms industry has been sufficiently vilified for the “Kitchen Table Dealers” in the press, we should work hard to keep the facts of that era in the forefront. As an aside, what other business is there that a young entrepreneur, or retiree planning a “Golden years” small business, would be vilified and painted as a criminal if they went and got the appropriate business licenses, and started small to build their business. The idea that a young man or woman working a day job and wanting to start in the firearms business to build for the future, and doing so on a budget, is continually assaulted with “Code words” to represent some type of “Off-color” activity- annoys the heck out of me. I know of very few of the large businesses in the firearms world that did not start out as a dream for someone, working nights and weekends to build towards that dream. The ATF is to be commended for their work in stopping the flow of firearms to criminals- there certainly have been instances of unscrupulous people getting a Federal Firearms License and spreading firearms to the criminal element- although most criminals do not get their firearms from a dealer. Flip side of the coin- those in the firearms business tend to be one of the most law abiding groups in the United States, and perhaps using a finer brush when painting a picture would keep from smearing the reputations of the majority of those in the firearms community who are legitimate citizens exercising their Constitutionally guaranteed Right to possess firearms. – Dan

From 1975 to 1992, the Federal Firearms Licensee population grew from 161,927 to 284,117. According to ATF, the growing licensee population, many of whom were not actively engaged in a firearms business, strained the agency’s enforcement resources as it did not have enough personnel to monitor the activities of licensees.

In 1993 and 1994, after prodding by the Clinton Administration, Congress enacted several measures, including increased fees and certification requirements. Following ATF’s implementation of those provisions, the number of Federal Firearms Licensees dropped from 284,117 in 1992 to 103,942 in 1999. This most recent total of license holders is the lowest since 1969. Of this most current total, 80,570 are retail dealers or pawnbrokers. The report notes, despite the decline in license holders, 31% of retail licensees in 1998 had not sold a gun in the previous year.

The 1993 and 1994 licensing reforms resulted in a substantial decrease in the FFL population. The total number of licensees dropped from 284,117 in 1992 to 107,554 in 1997, when the three year cycle of re-licensing under the new laws was completed. The licensee population began to decline after ATF instituted more rigorous scrutiny of applicants and the licensee fee was increased from $30 to $200 for a three year license in 1993. A number of licensees appear to have dropped out due to non-compliance with state and local ordinances. This is consistent with ATF’s 1993 finding that while 35% of dealers were required to have a state or local firearms license, only about 60% of these were complying with the requirement.

In 1998, ATF conducted an inspection program, “Snapshot,” which involved inspecting a random sample of retail dealers and pawnbrokers. This initiative disclosed that 44% of dealers operated out of commercial premises and 56% out of residential premises (down from 74% in 1992). Twenty-five percent of the 44% in commercial premises were gunshops or other shops whose primary business was sporting goods, hardware and the like. The remainder were located in businesses such as funeral homes and auto parts stores, and other businesses not normally associated with a gun business.

About 68% of the residential dealers were located in rural areas in 1998. At that time, about 36% of pawnbrokers and about 15% of other retail dealers were located in urban areas. Finally, about 5% of the total dealer population were gunsmiths. Presently there is one licensed firearms dealer for every 2,487 adults in the US.

The states with the largest number of FFL holders as of December 1, 1999, include Texas with 6,457 license holders, or 32 FFL’s per 100,000 population; California with 4,261 FFL’s, or 13 per 100,000 population; and Pennsylvania with 3,623 FFL’s, or 30 FFL’s per 100,000 population. The states with the least dealers include Rhode Island with 130 FFL’s, or 13 license holders per 100,000 population; Delaware with 138 FFL’s, or 18 such license holders per 100,000 population; and, Hawaii with 150 FFL’s, or 13 license holders per 100,000 population.

Compliance Inspections Drop

ATF ensures dealer compliance with regulations through its 440 field inspectors. These inspectors also perform regulatory compliance work for the other industries regulated by ATF, alcohol, tobacco and explosives. The percentage of full-time staff hours allocated to the firearms industry gradually increased from 30% in 1991 to a high of 58% in 1996. In 1997 and 1998, the allocation of hours dropped to 46% as inspectors were redirected to ATF’s explosives program following the 1995 Oklahoma City bombing. For fiscal year 1998, about 200 full-time inspectors were dedicated to firearms field inspections. The size of the inspection workforce has not changed significantly since ATF was established as a bureau of the Department of the Treasury in 1972.

Based on inspections conducted in fiscal year 1998, and assuming a licensee population of 100,000, it would take 2,600 full-time inspectors to inspect all licensed retail dealers annually. A two-year cycle would require a staff of 1,300; a three-year cycle would require 650 inspectors. While in the past the average inspection took approximately 10 to 20 hours to complete, under the agency’s new focused inspection policy, the average inspection of a firearms dealer selected by firearms trafficking indicators takes about 60 to 100 hours to complete.

ATF’s rate of compliance inspections of licensees has declined over the years. In 1969, the first year the then new Federal Firearms Licenses were issued under the 1968 Gun Control Act, there were 86,598 licensees, of which, 47,454 were inspected, or just over 54%. In 1970, with 138,928 licensees, just 21,295 or 15.3% were inspected. By 1975, with 161,927 in the licensee universe, only 10,944, or 6.7% were inspected. Inspections hit their lowest point in 1983 with just 2,662, or 1.1% of the 230,613 federal licensees being inspected for compliance with federal regulations.

Despite all the anti-gun rhetoric from the Clinton Administration, ATF’s rate of compliance inspections of dealers has not risen significantly during the Clinton years, the report shows. In 1995, with 250,833 license-holders, just 20,067, or 8% were inspected. This pattern has not changed more recently although the number of FFL-holders has significantly declined. For example, in 1997, with 107,554 licensees, only 5,925, or 5.5% were inspected. In 1998, with 105,536 licensees, a total of 5,043, or 4.8% underwent ATF compliance inspections.

NICS Data

The report notes law enforcement and the firearms industry have been brought “into a new era” in reducing illegal access to guns through the National Instant Criminal Background Check System (NICS). From the establishment of NICS in November 1998 to December 31, 1999, over 10 million firearms purchase transactions have been processed. Of these, the Federal Bureau of Investigation (FBI) handled approximately five million, and denied 89,636 reportedly unlawful firearms transfers. The states conducting background checks through the NICS processed the other five million and, the Department of Justice estimates, denied at least as many transfers.

Firearm Tracing

An increasing number of cities are tracing all recovered crime guns in an effort to stem illegal firearms trafficking. As a result, ATF has identified a series of trafficking indicators that signal whether a dealer or retail purchaser should be investigated for trafficking. These indicators include: multiple crime gun traces, sometimes associated with multiple purchases; short time-to-crime traces where the gun is used in a crime within three years after its retail sale; incomplete trace results due to an unresponsive dealer, and reports of lost and stolen guns. The agency cautions that crime gun traces to a dealer do not necessarily indicate illegal activity by the dealer.

At present, the National Tracing Center takes 11.4 days to complete a trace of a firearm to its first retail purchaser. It takes another one to three days for the trace information to be delivered by mail to the state or local agency requesting the trace. Urgent traces are handled in an expedited manner. To speed up this process, ATF has developed the Access 2000 computer program for accessing manufacturer, wholesaler and importer information about firearms that are the subject of trace requests.

The software allows ATF to trace firearms at any time since the manufacturer, wholesaler or importer downloads sales records into a computer on its premises that ATF can immediately access. Currently, five firearms licensees have adopted this voluntary system (RSR Wholesale, H&R 1871, Smith & Wesson, Davidson’s Wholesale and Taurus International Firearms), which shortens the trace time by an average of five days.

It should be noted, not all traces are conducted on crime guns. ATF says more than half of all traces were of guns recovered by law enforcement. Trace requests on the other firearms were conducted for a variety of reasons, presumably including dealer compliance with federal recordkeeping requirements.