Capitalism, Greed, Sex, and the AR-15
What We Have Let Ourselves Become
For many decades Republicans have extolled the virtues of free market capitalism, deified the “titans of industry”, and railed against any and all regulation. Regulation, after all, restrains the wondrous workings of the free market. This anti-tax, anti-regulation creed is found in every McMorris Rodgers “Weekly Newsletter” that her staff sends out to ply the faithful.
The story appended below is a reminder of the horrific consequences of unregulated capitalism driven solely by greed to the exclusion of any concept of the common good. It is a tale of money, marketing, and manipulation by a few at the expense of the many.
The story first appeared in the Wall Street Journal, where, one wonders if it may be read by some as an amoral roadmap to riches. Reading it made me want to vomit with rage over the abject greed of men (yes, all of them men) cynically marketing a weapon that is useful for almost nothing but killing fellow humans, marketing to take advantage of a high profit margin--selling the gun by inflating men’s egos with a promise of “re-issuing your man card”—even as the gun, in its ubiquity, is used to maim and murder innocent people. The business schools that trained these capitalist vultures should be shut down until they learn to train their students in the basics of humanity.
Keep to the high ground,
Private equity turned the AR-15 into a big profit-maker and a charged symbol in the debate over gun rights and mass shootings.
In December 2005, five groups of Wall Street investors flew in private jets to Portland, Maine, where they took waiting limousines to a warren of metal buildings that resembled a midsize lumberyard. They had come to Bushmaster Firearms in pursuit of a highly profitable product whose market was growing faster than any other in America’s stagnant gun industry. The product was the AR-15, and red-hot Bushmaster, the nation’s leading manufacturer of the rifle, had decided to auction itself to the highest bidder.
Bushmaster’s owner Dick Dyke had once feared that he could never sell the company because so many people had a negative view of the gun. A few years earlier, Dyke had been forced to resign his post as President George W. Bush’s chief Maine fundraiser after the media found out he made AR-15s for a living. After that, his company was again pilloried when two snipers who terrorized the Washington, D.C. area used a Bushmaster in their attacks.
But by 2005, Dyke’s concerns had evaporated. Sales of the AR-15 were growing faster than any other rifle or shotgun. When Dyke let it be known that he might be interested in selling, potential private-equity buyers rushed up to Maine to see his operations and make a bid for the AR-15 maker. “All of the sudden, they became an amazing thing,” recalled John DeSantis, Bushmaster’s chief executive.
The reason Wall Street investors were drawn to the gun was not only current profits but the potential to make a lot more, given increasing market demand. Dyke’s firm was, in many respects, a classic American business success story: Product sells well, investors come in to expand production and marketing, and sales soar.
But this business success story, which led to a massive increase in AR-15 production and civilian ownership in subsequent years, would have profound consequences for the U.S., affecting how we vote, how we go to social events and how our children attend school. The arrival of private equity in the AR-15 market would turn a once-disdained product into one of the most controversial and well-known icons of America’s culture wars.
By the end of the 2000s, the AR-15 had become a badge of honor for millions of supporters of the Second Amendment. As mass shootings with the rifle increased, it also became a symbol for millions of Americans who saw it as the epitome of violent dysfunction in a gun-obsessed America.
Today, the gun’s image is everywhere—bumper stickers, pins, Internet memes, hats and shirts. Signs with the gun’s silhouette crossed out by a line are carried at massive gun-control rallies across the country. Gun-rights advocates wave flags at their rallies with the AR-15’s image bearing the slogan “Come and Take It.” With more than 20 million of the rifles now in civilian hands, it has come to occupy the center of America’s bitter debate over firearms.
The AR-15 was created for the U.S. military in the 1950s by a little-known gun designer named Eugene Stoner at a small company in Southern California called ArmaLite. The weapon’s revolutionary design made it lightweight and easy to shoot. Stoner devised an ingenious way of using the hot gas from the exploding gunpowder to move parts inside the gun to eject spent casings and load new rounds, eliminating metal parts that had been used in other rifles. He also used modern materials like aluminum and plastic instead of wood and steel. The rifle was easy to manufacture and relatively inexpensive to make compared to traditional rifles.
After much bureaucratic infighting, the gun was adopted by the Pentagon as the military’s standard rifle and renamed the M16. The rifle made for the military could be fired on automatic, meaning a person could shoot a stream of bullets by holding down the trigger, or semiautomatic, meaning a shooter had to pull the trigger for each bullet fired. Civilian AR-15s sold in the U.S. are semiautomatic.
Sales of a civilian version of the AR-15, first marketed to hunters in the early 1960s, were weak for decades. Its martial look and function, its small-caliber bullets and the plastic and aluminum parts were a turn-off for many hunters used to rifles made of polished wood and gleaming steel. Serious problems with the roll-out of the M16 in Vietnam led many veterans of that conflict to dislike the gun. Soldiers died on the battlefield with M16s in their hands because of jamming problems caused by changes made by the military to the gun’s ammunition and other issues. Beyond Doomsday preppers and collectors, most gun-owners weren’t interested.
In 1977, Stoner’s patent expired, opening up competition for Colt, the storied gunmaker that manufactured both military and civilian versions of the rifle. By the 1980s, a handful of smaller gunmakers were making and selling civilian versions of the AR-15.
These companies received strongly negative reactions to the guns when they displayed them at NRA conventions in the 1980s and 1990s. “We’d have NRA members walk by and give us the finger,” said Randy Luth, owner of DPMS Panther Arms, one of the AR-15 makers.
Officials organizing the most important gun industry trade show—the Shooting, Hunting, Outdoor Trade Show, or SHOT Show—tried to make it as uncomfortable as possible for AR-15 makers to market their products. “They weren’t members of our club,” said one industry executive.
Cultural and political shifts after the Sept. 11 attacks transformed the gun’s image. Veterans coming back from the wars wanted the civilian version of the M16. American consumers wanted to buy it too, because they saw the soldiers fighting in the Middle East carrying the weapon. The 2004 expiration of the federal assault-weapons ban—which had prohibited the sales of AR-15s on paper, though not in reality—and the passage of legislation to protect gunmakers from lawsuits combined to create a perfect environment for large gunmakers to manufacture, market and sell large quantities of AR-15s.
The same mainstream gunmakers that had ignored the gun for decades jumped headlong into the market. Bill Silver, head of commercial sales at gunmaker SIG Sauer, known for high-end pistols, said he encouraged executives to build their own version of Stoner’s rifle. “I’ll sell as many as you can build,” Silver told them. He believed the gun would be a hit because the tough-looking military-style weapon had what he called the “wannabe factor.”
Dick Dyke’s Bushmaster now became the envy of all gunmakers. As a young man Dyke wanted to be a dancer, but his parents refused to pay for art school, so he studied business instead and embarked on a career of turning around failing companies. In 1976 Dyke purchased the bankrupt Bushmaster for $241,000. By the 1990s, he had turned it into a viable enterprise by selling a semiautomatic version of Stoner’s gun and its parts at a time when few other gunmakers made the weapon. Dyke could get machine shops to churn out parts at a low cost. All his employees had to do was assemble the guns and ship them out.
When John DeSantis, an engineer who had worked for established weapons firms, came to Bushmaster in 1998 he was shocked to learn how much the AR-15 sold for and how little it cost to make. The company had gross margins of around 40%, more than double that of companies making traditional hunting rifles or shotguns, he said. Under DeSantis’s leadership, Bushmaster pushed down the cost of production even further by pressuring suppliers for lower prices. Bushmaster was soon selling a single XM-15—its version of the AR-15—for $750 to $900, when it cost between $250 and $300 to build.
As money flowed in, Dyke became a local hero, paying high wages and donating to philanthropic causes. He also treated himself, driving a Rolls-Royce and drawing a salary of about $1 million a year, according to DeSantis.
Business boomed after 9/11 and the end of the federal assault-weapons ban, and Dyke decided to sell. When the Wall Street investors arrived, DeSantis gave each group of visitors a PowerPoint presentation with charts and graphs showing profits and the company’s growth. In 2004, Bushmaster brought in $46.6 million, with more than $7 million in earnings. By 2005, revenue had reached $60.8 million, with $11.2 million in earnings.
One group of investors caught DeSantis’s attention because they actually knew something about guns. They worked for a Manhattan-based private-equity firm called Cerberus. They told DeSantis that their boss, Stephen Feinberg, liked guns and was interested in buying a gun company. DeSantis had never heard of the man.
Most Americans had never heard of Feinberg or his Manhattan-based private-equity firm, even though the businesses it controlled had more than $30 billion in combined annual sales. Notoriously secretive, Feinberg maintained the trappings of his working-class upbringing as the son of a steel salesman, even as Cerberus grew. He drove trucks and loved to go hunting. In the gun industry, he saw an investment opportunity that other Wall Street tycoons did not.
When Dyke unsealed bids for Bushmaster, Cerberus had offered $76 million—315 times what Dyke had paid for the company. Dyke was thrilled, but Bushmaster’s employees initially were worried about a private equity takeover. DeSantis, who stayed on as chief executive, wondered why Feinberg, a Wall Street giant, wanted to buy Bushmaster. Feinberg’s Cerberus controlled sprawling international operations worth billions. Why did he want little Bushmaster?
DeSantis soon learned that Cerberus’s purchase of Bushmaster was just the first step in its grand plan to shake up and ultimately dominate the gun industry. Feinberg’s point man on the project was George Kollitides II, a Columbia MBA. After the U.S. invaded Afghanistan in 2001, Kollitides came up with the idea to invest in private companies aiding the war effort, according to his deposition in later court proceedings. But the military market for guns was smaller than he expected, and he worried about its volatility. No war meant fewer sales.
Instead, Kollitides grew intrigued by the U.S. civilian gun market. “There was a gigantic, thriving commercial market, and there may be an opportunity there,” he recalled thinking. The gun industry at the time was a fractured ecosystem of companies, most making their own type of firearm. Kollitides decided to apply a standard private equity practice: buy up and consolidate.
If the plan worked, the company could sell gun owners every kind of firearm they wanted, including ARs, and bring down the cost of production through scale. Kollitides understood the AR-15 to be important in this mission. The market for the gun had been growing about 8% every year from 1998 to 2005. “As an investor, this would excite me,” he said.
Cerberus’s efforts to build a firearms conglomerate were not the subject of mainstream media coverage, but the gun world buzzed. After buying DPMS Panther, another AR-15 maker, Cerberus’s gun conglomerate became the largest manufacturer of the rifle in America, producing 118,000 ARs in 2007, almost half the number made in the U.S. that year.
The compounded annual growth rate for the long-gun market—hunting rifles, shotguns, etc.—was 5% from 2004 to 2007. The rate for the AR-15 market was 36%. The men running the new gun conglomerate were sure they could sell even more. They launched a camouflage AR-15 model under its Remington brand, hoping to draw hunters to the semiautomatic rifle. They increased credit lines for wholesalers, the middlemen who bought the guns from manufacturers and then sold them to gun shops. “As soon as that opened up, we just went crazy,” DeSantis recalled.
The 2008 presidential election supercharged the AR-15 market. Barack Obama, the Democratic nominee, took a cautious approach to the gun issue. Obama had learned from watching what happened to his predecessors in 2000 and 2004 that talking about gun control didn’t help Democrats win national elections.
But the Democrat’s moderate stance made no difference to the NRA. The group announced it would spend a record $40 million to defeat him and back Arizona senator John McCain, the Republican nominee. The NRA launched a website, GunBanObama.com, and claimed he would be “the most anti-gun president in American history.” Gun shops taped up NRA posters declaring, “On the Second Amendment, Don’t Believe Obama!” Dealers at gun shows displayed photos of Obama and advised shoppers to “Get ’em before he does.”
On Nov. 4, 2008, Obama was elected president, and panicked gun owners rushed to buy AR-15s. That November, the FBI conducted more background checks for firearms purchases than in any other month since the modern background-check system was instituted in 1998. AR-15 makers called it “the Barack boom.”
Bushmaster’s workers put in six days a week, from seven in the morning to eight at night, assembling rifles by hand. At least 26 different gun companies made 444,000 AR-15-style rifles for sale in the U.S. in 2008, representing nearly 10% of all guns made in the U.S. that year.
Executives at Feinberg’s gun firm moved to grab an even larger share of the expanding AR-15 market. They changed the company’s name from American Heritage Arms to Freedom Group. They pushed their AR-15s into big-box stores such as Walmart, slashing the prices of their low-end rifles to get them on the shelves of America’s largest retailer. “With Cerberus and them, it’s all about the numbers and volume,” remembered Luth, who was still in charge at DPMS.
Freedom Group also dramatically altered the way that Bushmaster’s AR-15s were marketed. In the past, a typical Bushmaster ad would feature photos of rifles and parts with detailed descriptions of their specifications. In one from 1998, Bushmaster highlighted that its rifles had “Heavy Profile Premium Match Grade Barrels” and “manganese phosphate finish for rust and corrosion protection.” This approach appealed to older hobbyists who owned lots of guns.
But industry executives worried that these older hobbyists were tapped out and believed they needed to market to a new generation of consumers. Freedom Group launched an ad campaign in the glossy pages of Maxim, a magazine popular with young men featuring scantily-clad female models. The ads featured an image of the XM-15 and the words “Consider Your Man Card Reissued.”
Sales of Bushmaster rifles soared. The vast majority were purchased by Americans who used them to go target shooting or varmint hunting. But some ended up in the hands of disturbed loners who wanted to use them for something much more sinister.
On Dec. 14, 2012, a frail 20-year-old beset with mental problems used the Bushmaster purchased by his mother to attack Sandy Hook Elementary School near his home in western Connecticut. He shot and killed 20 first-graders and six educators before killing himself.
The immediate aftermath was akin to the U.S. reaction to 9/11—bafflement, sadness, horror, anger. The funerals for the Sandy Hook Elementary School victims began on a gray day, Dec. 17, when Noah Pozner and Jack Pinto, both six years old, were laid to rest. Six-year-old Ben Wheeler’s funeral was held on Dec. 20 at Trinity Episcopal Church. It was filled to capacity. His father read “The Road Not Taken” by Robert Frost.
On that same day, Freedom Group’s board of directors held an emergency meeting by telephone. Kollitides, who had risen to become Freedom Group’s chief executive, thanked the board members for meeting on short notice. He informed them that Cerberus, under pressure from major investors, had decided to consider selling the gun company after the shooting.
Kollitides noted that gun sales continued to be strong after the tragedy and then turned to other matters, including the possible acquisition of a gun-barrel manufacturer. The board still had business to attend to while they awaited a possible sale. Some in the meeting noted that the deal for the barrel maker would increase margins even further on the company’s AR-15s. The board voted to authorize the acquisition. Cerberus would ultimately decide against selling its gun firm as sales of AR-15s soared after Sandy Hook.
“It was an awful, horrific, huge tragedy, but its impact on the long-term capital decisions of the business were not—were not a factor,” Kollitides later said in a deposition. “We were in the business of legally making guns to legally sell to legal gun owners. So there is no other thing to do than wake up and make guns on Monday morning.”
Cameron McWhirter and Zusha Elinson are reporters for The Wall Street Journal. This piece is adapted from their new book, “American Gun: The True Story of the AR-15,” which will be published by Farrar, Straus and Giroux on Sept. 26.