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View Full Version : Where is my free market?


Odin
03-16-2009, 9:17 PM
Recently getting into (or rather trying to get into) building black rifles, all I seem to see anywhere is "OUT OF STOCK" posts and 6-24 month back orders. My question is; WHERE IS MY FREE MARKET? How is it that there can be such overwhelming demand for these products and no supply to speak of? Shouldn't companies be running their lathes 24 hours a day to fill this demand vacuum? And shouldn't we be seeing a move into this market by manufacturers in previously unrelated fields? This is not what I was taught in economics. It seems to me that when a manufacturer can see these items daily trading at 3 to 4 times retail value, they would be burning the midnight oil to pump these products out as fast as possible, be that with more machines or more hours. The only logical conclusion is that there is something stopping the move to production to meet demand. Any idea what it is? It cant possibly take 24 months to make me an upper! What is going on here? :confused:

Obviously a Plant
03-16-2009, 9:28 PM
It's harder to justify investing in more equipment or labor if your business can be legislated out from under you at a moments' notice. Until they have better assurances from the government, I suspect most ar companies will be happy to keep their current workers employed as much as possible...

Odin
03-16-2009, 9:39 PM
That may be, but wouldn't it seem the initial investment cost would be recouped in only a few months sales? I mean they are selling secondary for 4X what the manufacturer wants in some cases. Meaning that if they were previously manufacturing at a 20% profit they can manufacture now at a 320% profit! I don't think it is the economics of it. It has to be something else don't you think?

Obviously a Plant
03-17-2009, 12:46 AM
The FFL requirements for manufacturing arms or ammunition means the market is anything but "free". It is not a business that outside companies or organizations can jump into or re-tool for.

Maybe a bolt carrier assembly is not the simplest thing to make, or the current price is a reflection of a prior investment in being able to make dozens at a time... If I took the time to mill one myself, it could only be called a hobby, because I'm sure it would take me more than a week to get it right--at best.

Existing manufacturers are also limited by the credit they can obtain or the amount of their own profit they are willing to risk... A good deal of them might not think that America can afford or sustain the current gun buying lust, and then the market could be flooded with parts that the newly unemployed are selling.

From my armchair, the economics seem fairly clear. I don't think the secret communiques from the new White House or the ominous, unmarked cars parked outside have done much to influence the sound business acumen of our domestic firearms industry.

Dr Rockso
03-17-2009, 1:15 AM
I think they're doing pretty well. A couple months ago you couldn't find hi-cap magazines or lower receivers without a ridiculous markup, now they're back to (close to) their pre-panic prices. I'd imagine this is a result of the manufacturers pumping out these fairly easy-to-produce components at a rate much higher than normal. The upper assemblies are going to take the longest to rebound simply because there's a lot more involved in producing them.

Steve O
03-17-2009, 2:21 AM
That may be, but wouldn't it seem the initial investment cost would be recouped in only a few months sales? I mean they are selling secondary for 4X what the manufacturer wants in some cases. Meaning that if they were previously manufacturing at a 20% profit they can manufacture now at a 320% profit! I don't think it is the economics of it. It has to be something else don't you think?

yield management.
http://en.wikipedia.org/wiki/Yield_management

The manufacturers have set production levels, and a constant demand.
So why would they invest in more factories in the possible event of future legislation putting them out of business.

So instead of expanding, they sit there, making their products as fast as they wish, charge 200% more....and we buy it....

But you want them to spend millions on new factories under the fear that they can be shut down anytime new AW legislation passes?
I most certainly wouldn't invest in that company....

elSquid
03-17-2009, 2:53 AM
That may be, but wouldn't it seem the initial investment cost would be recouped in only a few months sales? I mean they are selling secondary for 4X what the manufacturer wants in some cases. Meaning that if they were previously manufacturing at a 20% profit they can manufacture now at a 320% profit! I don't think it is the economics of it. It has to be something else don't you think?

I think your number are off - what do you imagine the _average_ increased markup due to Obama is?

It's certainly not 4x. That would be "standard" CMMG carbine uppers going for $2K, Saigas going for $1400, M1A SOCOMs selling for $7K... and those would have to be MSRP prices for the manufacturers to see the benefit.

OTOH, if you want to buy my NIB 16 inch Saiga 7.62x39 for $1400, PM me! :D

-- Michael

CALI-gula
03-17-2009, 3:22 AM
Well, if it's free, why would anyone buy it? :p

.

squishyhead
03-17-2009, 8:04 AM
The manufacturers have set production levels, and a constant demand.

This is the very thing that pisses me off about Springfield Armory. I asked this same questions a few months back when I put a $1000 deposit down for an M1A. Apparently SA has a long standing tradition of not changing any of their production procedures, regardless of supply/demand. Right now they know how much people want their firearms, and they know they'll still be there whenever they get around to making enough.

The one problem I see with that is what almost happened with me. I had to choose between investing $2000 in an M1A which meant waiting, or building an AR-10 that I could be shooting much sooner. I'm never one to rush a major purchase, so I had no trouble choosing the M1A, but they're definitely losing a lot of business from those people who aren't patient. It just doesn't make sense to not consider increasing your production levels when there are customers saying, "I've got 2K to spend on a rifle." Why would you ignore that and say we've already met our quota for this quarter, and be willing to lose all that business when you can make more?

CalNRA
03-17-2009, 8:13 AM
That may be, but wouldn't it seem the initial investment cost would be recouped in only a few months sales?

you have no idea how much quality precision equipment required to make rifles cost, do you? People tend to think (to paraphrase an article I read a few years ago) gun companies are thee huge faceless companies that turn out racks and racks of products like an I-pod factory, but the reality is very different.

On top of that, in order to meet the demand they also must hire new people. With the administration threatening to ban this and that, why should they risk being stuck with all new expensive equipment AND more employees to pay when the chips fall?

trinydex
03-17-2009, 8:59 AM
on the whole topic of yield management... wonder if all this housing crisis ******** would have happened if we just kept the same number of houses and charged a billion each....

tankerman
03-17-2009, 9:08 AM
Try looking harder. I've seen uppers and lowers for sale by vendors on this site. No shortage of accessories.

tankerman
03-17-2009, 6:53 PM
Guess he's not really that serious about "building black rifles".

audihenry
03-17-2009, 8:34 PM
That's your market at work, bud. You're subject to the laws of supply and demand. Guess what happens to your drinking water supply if there's a major emergency? Yep, you dry to death! ;)

Steve O
03-18-2009, 1:18 AM
This is the very thing that pisses me off about Springfield Armory. I asked this same questions a few months back when I put a $1000 deposit down for an M1A. Apparently SA has a long standing tradition of not changing any of their production procedures, regardless of supply/demand. Right now they know how much people want their firearms, and they know they'll still be there whenever they get around to making enough.


I'm just guessing here....but this is no different than De beers controlling the flow of diamonds...

If Springfield releases to much M1A's to their retailers, those retailers are forced to compete with lower prices to clear inventory.
If Springfield controls the flow to a slow but steady rate, and finds that sweet spot, the retailers don't have to compete that hard as the hot item will sell out almost instantly!

Like when I got my Romy WASR-10 For $350 in 2006. Say the factory made 500k WASR's that year and sold them for $350.
They realize that no matter how many they make they sell for $350...so why not make less, and sell them for $450...then $600... what are they now $800??

I've noticed that the gun industry is like no other. I swear some factory can make crap, and still sell it.
Remember when everybody was talking crap about Del Tron. Well now everyone has a Del Tron and they are back ordered...

I don't know. I'm not an expert. Just a commodities analyzer.

Odin
03-18-2009, 8:21 AM
That is what blows my mind. Controlling the flow of diamonds is controlling a finite resource. Controlling the amount of "black rifles & parts" produced isn't. One would think the market would be moved into by manufacturers to meet the demand. I see the "it takes quality precision equipment" and "they would have to hire people" arguments but those points are moot. Profit drives a market, the profits are there to be had. As for inflation of prices, it just depends what piece you are looking at. Lets use a real example:
Right now on the Stag website they list the model 5H 6.8spc complete upper for sale for $525 (with a free magazine!)
What do you suppose the profit on that item is? 10-20% ?I dont really know what kind of profit margins they have but it seems to me that 20% seems to be a natural high for these things in a sustainable market. Lets use 15% just to be safe.
So it costs $525 and of that, $78.75 is profit for the company.
Right now on gunbroker there is a USED model 5H upper with a buy it now price of $750.00 In the past three weeks I have bid in 3 auctions for this piece. all have ended over 900 when the auction expires. But again to err on the side of caution let say the buy it now price is the price that a company could sell this item new.

In this example, you can produce a model 5H complete upper at a cost of $446.25 and sell it for $750.00 realizing a profit of $303.75
That is 385% of their current profit. I have to assume this extraordinary boost in profit margin would cover the cost involved with increasing production.

That is why I posted, to see what you guys think and if there is something I missed because if these numbers are even CLOSE to accurate then I would assume we will be seeing new brand popping up like crazy to cut their piece of the pie.

trinydex
03-18-2009, 9:03 AM
let me counter that example...

they increase production by hiring 10% more staff to do the overflow work that the previous 100% staff did. they take out a 10% loan on the company to buy 10% more machines to do 200% more work. this might bring in 400% profit for about 50% of ONE YEAR.

after this one year... they're having a hard time paying off the loan that's 10% of their unadjusted gross worth, they have to lay off 20% of their work force and try to liquidate 10% of their production capacity. the .gov doesn't happen to care about a gun company that's too big to fail so they default on their loan and now their credit rating sucks. banks won't lend to them any further and neither will the .gov. XXX gun company just tanked because they got more greedy than the LONG TERM MARKET could bear....

this is all assuming things can happen overnight too, now you throw in the TIME it takes to "do business" and they're underwater at the time the market starts to plateau, oh that's just WONDERFUL.

this also doesn't account for them doing something unscrupulous and attracting investors and fakeying up projected numbers of unsustainability...

hawk1
03-18-2009, 9:31 AM
...Lets use a real example:
Right now on the Stag website they list the model 5H 6.8spc complete upper for sale for $525 (with a free magazine!)
What do you suppose the profit on that item is? 10-20% ?I dont really know what kind of profit margins they have but it seems to me that 20% seems to be a natural high for these things in a sustainable market. Lets use 15% just to be safe.
So it costs $525 and of that, $78.75 is profit for the company.
Right now on gunbroker there is a USED model 5H upper with a buy it now price of $750.00 In the past three weeks I have bid in 3 auctions for this piece. all have ended over 900 when the auction expires. But again to err on the side of caution let say the buy it now price is the price that a company could sell this item new.

In this example, you can produce a model 5H complete upper at a cost of $446.25 and sell it for $750.00 realizing a profit of $303.75
That is 385% of their current profit. I have to assume this extraordinary boost in profit margin would cover the cost involved with increasing production.

That is why I posted, to see what you guys think and if there is something I missed because if these numbers are even CLOSE to accurate then I would assume we will be seeing new brand popping up like crazy to cut their piece of the pie.

Keep in mind that upper being sold at Gunbroker is not being sold by Stag themselves. Stag made their profit when they distributed it to whoever. New owner may have bought it from a gunshop who also tacked on their profit. Then the new 'owner' is offering it for the $750. Now buyers are bidding it up because it is an item on hand with no wait. Whatever the ending price is, it's not profit that Stag is getting. In the end, that closing Gunbroker price, has nothing to do with helping Stag to increase production.

M. D. Van Norman
03-18-2009, 9:34 AM
The firearms market is far from free. Manufacturers and retailers can raise prices with little fear of competition. If demand persists, production will eventually expand, but prices will stay higher for the most part.

Ha! Maybe we’ve found the next bubble. :whistling:

Odin
03-18-2009, 9:41 AM
Again the argument that the machines cost too much. :(
That is assuming that they are running current equipment/setup at 100% capacity. As for hiring workers, since when is that a factor? You hire workers as you need them and lay them off when you don't. Unless there is some sort of gunsmithing union laws on the books... and we all see how well those work for other industries (read: auto)
So my counter, counter :) is:
they hire a second shift of workers to double production on current machines. no loan needed, they realize a 200% increase in production. Doubled production = doubled profit and if they are selling at the higher prices the market is fetching that would be double the 385% profit so 770% of "operations as normal" profit.
After one year of operating they have made the profits for over seven years of business as usual. If the market slows, production decreases back to supply what is demanded.

Odin
03-18-2009, 9:44 AM
Hawk we are talking about what the market, IE. us gun buyers, are willing to pay for an item. Its obvious that we are willing to pay upwards of 900 bucks for a complete upper. Therefor Stag can raise prices if they can meet the demand. I would certainly buy a complete upper from Stag and have it shipped to me before I buy one from a gunbroker auction give that they are the same price and readily available.

mblat
03-18-2009, 9:44 AM
First of all increase production by 10% easier said than done if you already working at full capacity. I don't care what you are making it isn't easy.
Second we are dealing with very narrow and (in reality) very small market. number of people capable of working in this industry limited. Even if you can bring new manufacturing capabilities on-line in six month ( since November) where are you going to find trained people to do the work?
Lastly, why would you? This WILL end. Housing bubble had burst. Gun frenzy will subside. What are you going to do with all those extra machines and people?

M. D. Van Norman
03-18-2009, 9:44 AM
Why increase production, when you can just raise prices instead?

berto
03-18-2009, 10:06 AM
Hawk we are talking about what the market, IE. us gun buyers, are willing to pay for an item. Its obvious that we are willing to pay upwards of 900 bucks for a complete upper. Therefor Stag can raise prices if they can meet the demand. I would certainly buy a complete upper from Stag and have it shipped to me before I buy one from a gunbroker auction give that they are the same price and readily available.

You're equating what part of the market is willing to pay with the entire market. I'm not paying $750 for an upper unless it's a sreaming deal, and by that I don't mean something with a $500 list price. I want an upper to complete my build, but I don't need an upper or an AR in the grand scheme of things (I know, blasphemy), so I'll wait for the next BCM run and take my chances. It makes sense for manufacturers to raise their prices but not necessarily to increase production as the market can only bear so much.

AaronHorrocks
03-18-2009, 11:03 AM
On top of that, in order to meet the demand they also must hire new people. With the administration threatening to ban this and that, why should they risk being stuck with all new expensive equipment AND more employees to pay when the chips fall?

And even hiring a bunch of new people isn't going to help since they need to be trained. They can actually (and most likely will) decrease production in the short term.

Steve O
03-18-2009, 11:33 AM
That is what blows my mind. Controlling the flow of diamonds is controlling a finite resource. Controlling the amount of "black rifles & parts" produced isn't. One would think the market would be moved into by manufacturers to meet the demand. I see the "it takes quality precision equipment" and "they would have to hire people" arguments but those points are moot. Profit drives a market, the profits are there to be had. As for inflation of prices, it just depends what piece you are looking at. Lets use a real example:
Right now on the Stag website they list the model 5H 6.8spc complete upper for sale for $525 (with a free magazine!)
What do you suppose the profit on that item is? 10-20% ?I dont really know what kind of profit margins they have but it seems to me that 20% seems to be a natural high for these things in a sustainable market. Lets use 15% just to be safe.
So it costs $525 and of that, $78.75 is profit for the company.
Right now on gunbroker there is a USED model 5H upper with a buy it now price of $750.00 In the past three weeks I have bid in 3 auctions for this piece. all have ended over 900 when the auction expires. But again to err on the side of caution let say the buy it now price is the price that a company could sell this item new.

In this example, you can produce a model 5H complete upper at a cost of $446.25 and sell it for $750.00 realizing a profit of $303.75
That is 385% of their current profit. I have to assume this extraordinary boost in profit margin would cover the cost involved with increasing production.

That is why I posted, to see what you guys think and if there is something I missed because if these numbers are even CLOSE to accurate then I would assume we will be seeing new brand popping up like crazy to cut their piece of the pie.

The profit margin in manufacturing is MUCH higher than that.
It probably cost them $100 to make that upper. But the cost to profit depends on the company and their ability to buy in bulk their supplies.

Steve O
03-18-2009, 11:41 AM
let me counter that example...

they increase production by hiring 10% more staff to do the overflow work that the previous 100% staff did. they take out a 10% loan on the company to buy 10% more machines to do 200% more work. this might bring in 400% profit for about 50% of ONE YEAR.

after this one year... they're having a hard time paying off the loan that's 10% of their unadjusted gross worth, they have to lay off 20% of their work force and try to liquidate 10% of their production capacity. the .gov doesn't happen to care about a gun company that's too big to fail so they default on their loan and now their credit rating sucks. banks won't lend to them any further and neither will the .gov. XXX gun company just tanked because they got more greedy than the LONG TERM MARKET could bear....

this is all assuming things can happen overnight too, now you throw in the TIME it takes to "do business" and they're underwater at the time the market starts to plateau, oh that's just WONDERFUL.

this also doesn't account for them doing something unscrupulous and attracting investors and fakeying up projected numbers of unsustainability...

That's perfect....

Also consider in this economy. Good profitable businesses are not receiving credit like the used to!

The banks at this point are taking bailout money and not lending. And by not lending I don't mean not at all. Sure Jo Blow can buy a car here and there, but the banks are just trying to make it appear that they are still in business at this point, but in reality they are just holding down the fort. waiting to see it they are going bankrupt or if everything is going to stabelize.

And that the key right there...
In an unstable economy it is wise not to expand!

Steve O
03-18-2009, 11:45 AM
Why increase production, when you can just raise prices instead?

The gun buyers of America take our RTKBA seriously, and they know we do.
So who should any company take on the task/risk/headache of starting new production in such uncertain times? Simply implement the policy of "yield management" and raise prices...

Steve O
03-18-2009, 11:48 AM
Again the argument that the machines cost too much. :(
That is assuming that they are running current equipment/setup at 100% capacity. As for hiring workers, since when is that a factor? You hire workers as you need them and lay them off when you don't. Unless there is some sort of gunsmithing union laws on the books... and we all see how well those work for other industries (read: auto)
So my counter, counter :) is:
they hire a second shift of workers to double production on current machines. no loan needed, they realize a 200% increase in production. Doubled production = doubled profit and if they are selling at the higher prices the market is fetching that would be double the 385% profit so 770% of "operations as normal" profit.
After one year of operating they have made the profits for over seven years of business as usual. If the market slows, production decreases back to supply what is demanded.

Most manufactures are running tipple shifts...so that idea wont work ether...
I used to work grave yard at a machine shop...it sucks...

hawk1
03-18-2009, 12:12 PM
Hawk we are talking about what the market, IE. us gun buyers, are willing to pay for an item. Its obvious that we are willing to pay upwards of 900 bucks for a complete upper. Therefor Stag can raise prices if they can meet the demand. I would certainly buy a complete upper from Stag and have it shipped to me before I buy one from a gunbroker auction give that they are the same price and readily available.

I understand what you're talking about. This is your qoute;

In this example, you can produce a model 5H complete upper at a cost of $446.25 and sell it for $750.00 realizing a profit of $303.75
That is 385% of their current profit. I have to assume this extraordinary boost in profit margin would cover the cost involved with increasing production.

If Stag raised their prices to the $750 level as you've mentioned then they theoretically could invest more money to ramp up production. If this period of time tuns out to be only a temporary increase in sales and available supply of uppers increase, then Stag will stand to lose the money invested to ramp up production.
In the short term, buyers would face a much higher cost than $750 for that upper, at least untill over supply brings the price back down.

Odin
03-18-2009, 12:18 PM
Most manufactures are running tipple shifts...so that idea wont work ether...
I used to work grave yard at a machine shop...it sucks...

That is what I was wondering; Are these companies cranking out product 24-7 trying to meet the demand? If they are then it is much easier to understand why they are not perusing permanent options to boost productivity.

Jicko
03-18-2009, 12:29 PM
Recently getting into (or rather trying to get into) building black rifles, all I seem to see anywhere is "OUT OF STOCK" posts and 6-24 month back orders. My question is; WHERE IS MY FREE MARKET?

Free market -> if you offers INSANE money, you will be able to get your stuff NOW. Contact me if you are prepared to do that.

technique
03-18-2009, 12:44 PM
Screw Gunbroker...

You can find deals here in the FS threads or ARFcom and M4car.

I found in one day pretty much what I wanted. I got a RRA 16in middy W/O hand guards for $565 shipped. I go a tangodown battle grip for $20 shipped....

The industry is working hard to fill backlogs....they will catch up...

I haven't seen too much change, I can still get what I want..If your new to "Black Rifles" thats probly part of your problem. Just not looking in the right places...or knowing the right people.

Odin
03-18-2009, 12:49 PM
.If your new to "Black Rifles" thats probly part of your problem. Just not looking in the right places...or knowing the right people.

And so I have recently joined CalGuns and am still working on my first 100 posts!

hawk1
03-18-2009, 1:23 PM
And so I have recently joined CalGuns and am still working on my first 100 posts!

I have to admit about your post, it's a bit of fresh air from a newbie. :)
We mostly see posts 'informing' us about some bill or whatnot thats been kicked around here for months or longer before they ever heard of Calguns.

So, may I say, Welcome to Calguns! :D

Odin
03-18-2009, 4:35 PM
Thanks for the welcome! I love it here already!

tankerman
03-18-2009, 4:37 PM
http://www.jandjarmory.com/istar.asp?a=3&dept=UPPER

AKman
03-18-2009, 4:52 PM
Again the argument that the machines cost too much. :(
That is assuming that they are running current equipment/setup at 100% capacity. As for hiring workers, since when is that a factor? You hire workers as you need them and lay them off when you don't. Unless there is some sort of gunsmithing union laws on the books... and we all see how well those work for other industries (read: auto)
So my counter, counter :) is:
they hire a second shift of workers to double production on current machines. no loan needed, they realize a 200% increase in production. Doubled production = doubled profit and if they are selling at the higher prices the market is fetching that would be double the 385% profit so 770% of "operations as normal" profit.
After one year of operating they have made the profits for over seven years of business as usual. If the market slows, production decreases back to supply what is demanded.

As an employer, I don't hire people to meet some peak demand knowing I will have to lay them off when the frenzy is over. We all work harder and then enjoy the extra money and time off when work slows down. Hiring also cost money; advertising, interviewing, checking references and backgrounds, the mountain of paperwork required by CA and US, and finally training. People are every bit as big of an investment as equipment, unless you're some sort of a_hole that just wants to use people to make a buck and them discard them when they are no longer needed. I also doubt that there are a lot of trained people out there that could staff a second shift while maintaining quality control. You want to ruin a business? Start turning out junk.

Finally, why should firearm manufacturers compromise their business just to satisfy a short-term demand for their product. They will already experience a substantial reduction in business when the frenzy ends and a lot of firearms find their way into the resale market. Besides, they know you will wait patiently and pay top dollar.