The Remarkable Number of Factors Impacting Gun Prices

owen said:

Don't forget the distribution system, records keeping etc.

Lowe's buys direct from the manufacturer. Most gun stores can not. The retail cost is usually about 2x the manufacturing cost for the handguns I'm familiar with, and the manufacturer gets the smallest slice of the markup.

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Very, very true. The factors that impact the price of a gun in the USA versus (let's say) a cordless drill motor or a top-of-the-line fly rod is very, very long.

Gun makers try to preserve that distribution layer in part as an attempt to isolate themselves from liability. One huge exception is Wal*Mart that will not deal with distributors as a company policy.

Some here are suggesting that guns are a good deal based on the utility they provide or in comparison to other products that really aren't comparable. That's really not the topic.

The simplest example I can give is to disassemble a Glock 17. Take a good look at all the parts and how long it takes to reassemble. If Makita or Ryobi could make a clone of the Glock 17 in Taiwan or China under the same rules they current make power tools, guns would be a great deal cheaper.

Restrictions of all kinds currently keep this from happening.

cfullgraf said:

I do not which Burger Kings you have been frequenting over the past 30 years.

Free market economy certainly does not apply to the firearm business as there are too many government applied restrictions and regulations.

Also, the volume of gun manufacturing is pretty low when compared to other goods. For example, only about 6 million M1 Garrands where manufactured over a 18-20 year production run. Not many in the world of production.

Over the years, manufacturing cost of firearms have gone down as designs and techniques have improved. Consider why we have Glocks and other "Tupperware" guns today instead of P-08 Lugers and Colt 1903 Hammerless pistols.

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You make some outstanding points...

I don't eat fast food anymore ( ) but when I did you could buy a Whopper for $.99. You couldn't do that in 1980.

You're right about gov't restrictions and regulations. There are also societal factors. It wouldn't be PC for Callaway Golf to get into gun making and provide some real competition as an example

You hit on something very interesting. Gun production (while at industry record highs right now) is small potatoes compared to other industries. Ruger proudly proclaims that it is "sold out." I shake my head at the thought of Honda or TaylorMade making such a statement. It just wouldn't happen and if it did, the condition wouldn't last very long.

Hard manufacturing costs associated with a single firearm unit HAVE indeed dropped. Not because direct labor, materials or overhead is cheaper but because the newer designs are far more producible and many of the processes are far, far more efficient.

P5 Guy said:

What is the ratio of commercial sales of firearms to sales to agencies/governments?
Do firearms manufacturers take a loss on sales to agencies/governments that they tend to make up on commercial sales?

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I don't know and I'm not sure that's germane to the discussion.

What I have seen is how cheaply Glock sells (or sold) its firearms to individual public safety/military members. In the case of Glock it gave some idea of the huge margins in some guns in spite of all the regulations and restrictions.

In the book about Glock, Gaston Glock argued for a far less expensive MSRP for his Model 17. He would still make plenty of $$ and it would help him build market share. His chief in the USA cautioned that a low price would cause people to equate Glocks to being junk guns. Very shrewd.

That's back to my original point. Without all the regulations, restrictions and badwill within the gun arena, real, hardcore competition would have driven down the price of guns a long time ago.

owen said:

You don't think there isn't already hardcore competition?

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No, I don't. There is certainly competition, but it's not hardcore like it is in other industries.

There are no TaylorMades in the gun industry How TaylorMade Made Its Move for instance. I would suggest this is due in part of gov't regulations/restrictions and the non-PC nature of manufacturing guns.

I was thinking about Apple and Ruger. Imagine if Apple said "we're booked for the coming year and we're not taking anymore orders." It just wouldn't happen -- they would create the extra capacity.

On the other hand the extra phones they built and sold would still need replacement down the road. That's not the case with guns.

I believe if there was truly hardcore competition for consumers' gun dollars, prices would be far lower (even with the gov't being involved) and there wouldn't be constant shortages.

cfullgraf said:

While regulations and restrictions artificially raise the price of guns relative to a free market item, if the volume of sales were high enough, they would not matter. There would be more manufacturers and therefore more competition if the sales volumes were higher.

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Naw. While guns are certainly not automobiles, iPhones or golf clubs, the market is certainly large enough and lucrative enough to attract more competition were it not for all the gov't regulations/restrictions and the social stigma of being a gun maker.

You're suggesting the classic model applies to guns -- supply will grow to fill demand and I'm suggesting that's not the case for the aforementioned reasons. At least not right now. I'm sure it has been in the past, and might one day be again, but for now, not way.

cfullgraf said:

Though out history, gun manufacturers have been on the brink of going out of business for numerous reasons. Generally, they push for a government contract and frequently go under when they cannot get one, or lose one.

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It's more complicated than that. You're right -- guns have traditionally been a feast/famine business. Take on a gov't contract, build a zillion guns, hope to get paid for them and if you survive, watch the sales of surplus guns (of both foreign and domestic makers) eat into the market share.

cfullgraf said:

Most of the old time gun names in the United States have struggled on and off for years and decades. In my 30-40 years of gun interest, Winchester has been in and out of business several times. Smith and Wesson has passed through several holding companies. There are others.

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True.

cfullgraf said:

The gun business is not an easy one to be in.

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I very much agree. Look at my first bullet on my original posting.

taliv said:

and yet compare that to the complexity and difficulty of manufacturing a hard drive. the material involved, the precision required, the speed the platters move all point to the HD costing more than a porche. but no, they're $40 for a decent one. why do you suppose?

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Cutthroat competition driven by the potential of enormous wealth through high volume sales that in turn drove huge cost reductions in both product and process designs and engineering

taliv said:

kynoch, those are relevant. the fact that they're consumable vs durable is not the point. the point is comparing inflation. guns are not expensive compared to other things today. and they're quite cheap compared to their historical prices after you adjust for inflation.

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What type of product they are makes a huge difference. Comparing a firearm to other durable goods like power tools and sporting goods to guns is a lot more illuminating than comparing them to the cost of a loaf of bread.

Guns are extremely expensive today compared to say power tools (as just one example.) Someone on this thread said something like: I just bought XYZ firearm and I don't think it was expensive. They missed the point of the thread in its entirety.

This thread is not about the number of utils a firearm produces at a given price. It's the sales price of a gun relative to what it costs to make and sell less all the restrictions/requirements/added costs largely unique to the gun industry.

taliv said:

btw, i agree with owen that there is pretty fierce competition in the gun business. you probably don't see it as a consumer, but behind the scenes when you look at relationships with distributors etc, it's there.

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It's all relative. It's not nearly as fierce as it would be in a truly free (or nearly free) market like making golf clubs, consumer electronics or computers. No gun maker moves (or is likely able to move) as fast and furious (no pun) as TaylorMade did in the example I gave.

It will be very interesting to see if the gun makers will be able to collectively maintain the level of supply/demand we all feel right now which is that of varying degrees of shortage. If this was another industry, the increase in production would have been felt long ago -- by existing players or new companies getting into arms making.

JSH1 said:

The recent gun buying frenzy is not business as usual. A company such Ruger would be foolish it add capacity to meet the demand from the last 6 months only to see order volume go back to historical norm and be stuck with extra capacity.

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Nor is when the world went nuts when the iPhone came out. We didn't hear Apple saying that it wasn't taking anymore orders. Also, how do you know the current demand is going to last 6 months?

JSH1 said:

Apple is not a good comparison to Ruger. A smartphone has a useful life of 1-2 years and is hopelessly out of date in 6 months. Apple has the demand they do because their customers replace the product every 1-2 years.

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I mentioned the durability of guns -- another interesting thing that impacts gun making. The point is Apple faced demand that Ruger NEVER WILL and we never heard that it's not taking anymore orders for a year.

JSH1 said:

Another great American company is a much better comparison to Ruger and that is Harley Davidson. During the boom years of the late 1990's Harley Davidson was sold out. They had waiting lists to purchase new motorcycles and dealerships added thousands of dollars of accessories to an average motorcycle. The waiting list was long enough that people paid new MSRP for 1-2 year old motorcycles. Harley could have increased capacity to meet demand but they didn't. Instead they sold every motorcycle they made at a premium price.

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HD is not a good comparison to the entire gun industry. It would be a good comparison to say Colt -- a brand icon, but not the entire industry.

HD did a superb job of artificially limiting production for many years. It finally caught up to them. They now have domestic competition (Victory, Indian, etc.) and the international competition is harsher than ever but they sure cut a fat hog for many years.

owen said:

Was that just direct costs? or direct and indirect?

Indirect covers paying for people and floorspace that are not directly involved in manufacturing, like executives, marketing, lawyers, etc, taxes (VAT is 20% in Austria), insurance, etc.

Do imported guns get charged the Pittman-Robertson excise tax? That's another 10%.

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Hard costs -- direct materials, direct labor, plus associated overhead. No excise taxes.

Beetle Bailey said:

FYI Ruger is planning to open another factory to help meet demand

http://www.nhbr.com/May-3-2013/Ruger-looks-to-open-a-third-gun-plant-but-not-in-NH/

BTW I ordered a .44 special Blackhawk last month and got it two weeks ago. Looks great and shoots like a dream

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Indeed. It's looking for a ~250K square foot facility.

Potatohead said:

this doesnt make a lick of sense..in high school, the value meal i used to get costed me 3.23$ (i remember because i went every day after school), today the same value meal is 4.99, before tax

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So?

Lots of food items are cheaper today then they were long ago. I just bought quarts of Gatorade last night for $.68/each on sale. The cheapest I have ever seen. Far, far cheaper than in the 1980's when I was in high school. The reason? Competition.

Two liter bottles of Coke are routinely .99 here. I never saw it that cheap in the 1980's or 199's.

Potatohead said:

i would think they have a much better margin (apple)..making it much easier to keep taking orders and adding capacity..also they dont sell "bubble" items like guns, that have buying trends that shift with the political landscape. Besides, ammo is the expensive thing in my part of the world, guns are the same as they were.

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One of the reasons is Apple spends its "manufacturing time" on qualifying suppliers and not on building things which would be difficult for gun makers to do. You want to build iPhones for Apple? You want to make a mountain of cash? OK. But you're going to go through a very rigorous qualification process which you won't pass unless you are a top-flight vendor. The competition to supply Apple is huge and is a huge asset when Apple is pushed.

Guns makers do have some pretty difficult things to contend with. So do worldwide consumer electronic giants...