Break up Federal

[nwhpfan]

Does Federal do anything that prohibits another company from making money making ammo? The idea to break them up sounds unamerican. See the video below if you haven't already....


FWIW I started shooting (and started reloading about the same time) after Obama had been in office and before Sandy Hook. Components were easy to come by at the time but I was told it was sketchy after 2008. Luckily I did what everyone told me...find out what you like and buy enough for a couple years at a time. 1: You'll save by buying in bulk, save on shipping, save on hazmat, etc. 2: You wont' have to worry about "panics." A couple years after Sandy Hook I recall the ads aggressively promoting projects. I recall being moved by a free shipping, free hazmat. Federal Primers for $28 per K just a couple years ago. . And all the stuff people bought at "panic prices" were being offloaded on local forums. Looking at some old emails I have one from Wideners dated April 2019. 1k Fioci 115f $169, 1k Magtec .45 230g $274, 5000 Winchester 22lr 40g $179, 500rds Federal 62g .223 $155 So the real question is, when things get back to normal will you spend 5k to really stock up?

https://youtu.be/KIgvoJKovIg

[TGS]

In both positions, I was paid to figure out how to say “yes” and not “no.”

So are you insinuating that the ammo companies should figure out a way to give an absolute "yes" to the current demand?

I'm going to guess that opening new factories to meet the current demand would be unwise since it's a bubble, and you're not going to get capital to build one because the investors and banks know this too. The current demand is partially driven by the high demand itself and people being afraid about "Getting some while you can". Call it panic buying, if you will. Alleviate that demand, and you've just popped the bubble, and you're sitting with a new shiny factory making twice as much product than you can sell. As is, I imagine their long term planning already has them laying off the hundreds of people in the next few years that they've hired to address the current demand.

I say you get out there and show'em how its done. Do their job for them, since you obviously feel they're incapable of doing it.

[GJM]

There is a difference between saying we as consumers would be better served by Vista’s ammunition brands being separate and asking lawfully merged business to split. The latter is what state lawsuits are trying to do with FB and Google.

Right now, we are hung up on step one of that proven multi step process of solving the most difficult problems, with step one being to admit there is a problem. There are a number of people suggesting there is not a problem here. I believe there certainly is a problem when primers and ammo are either unavailable or so expensive that they are effectively unavailable.

Once we admit there is a problem, asking manufacturing guys to solve the problem is unlikely to move the needle significantly because of how difficult it is to quickly scale ammo production and how large the imbalance is between supply and demand today. What you would get from them is comments like “have you ever been involved in manufacturing.”

Next, I question how hard companies like Vista will try to solve the problem when increasing production significantly, requires large investment with future risk, while currently they can sell every box of 9mm they make, on their website at 3X the price of what it was selling for through distributors in January 2020. Leaving aside their words, current ammo manufacturers benefit from am ammo crisis just as oil suppliers did in times past.

There also seems to be a lot of worry about investors losing money on ammo manufacturing. I am not worried about that, since I believe in capitalism. At current prices, there is significant incentive to make ammo to capture higher levels of profits. Of course that brings risk, but that is how capital gets allocated, considering risk and reward. If Vista isn’t willing to invest capital, and there is demand greater than current supply, I hope other investors will step up and increase supply.

So where does that leave us if the current manufacturers are unable or unwilling to scale up production sufficiently to make ammo and components available so the shooting sports don’t die. Right now, I believe supply of ammo is the single greatest threat to the shooting sports. One way to increase production is to harness the manufacturing capability in every reloader’s basement or garage. I see solving the shortage of primers as the easiest way to get things back to normal. While home reloaded ammo may not be the right choice for LE and EDC, it certainly works for practice, training and competition. Smarter people than me need to figure out how to increase the supply of primers. Once primers do become available, ideally we would build the equivalent of a strategic oil reserve of primers, that could be released as necessary in the future. Assuming no shelf life issues, it could be a pretty good investment, although I prefer it as price stabilization and not for profit.

So, how do we significantly increase the supply of primers domestically or through imports? It must be less costly and easier to increase the supply of primers than to ramp up the ability to deliver loaded ammo.

[JAD]

I’d say we can readily agree that there’s a problem: there’s no ammo right now. There is a countervailing problem: there is too much ammo when nobody wants it. That latter is serious, because when the smaller ammo companies hit those periods, consolidation occurs.

We disagree on the root cause. You assert that because some portion of the supply is under single control, and competition among that subset is limited, that they’re not making as much ammo as they can. That’s dumb; how is it not in all of the subentities’ interests to maximize output right now?

Someone else did a good job of demonstrating that the industry is not particularly concentrated.

I’d say the root cause of the issue is the limited ability of the industry to expand capacity; fishbone those limits and I think it points mostly to the capital-intensive component (particularly primer) supply chain, which is highly consolidated and probably has crazy lead times.

So having flayed that out a little, I’d like to know more about which components are constrained, and what the pressures are on those components, before thinking too much about relief.

[Jared]

Even if Vista wanted to increase capacity, that would take a while. Hell, even just adding a new line to make primers will no doubt take a while.

Just to give you a bit of an idea of my frame of reference, I’m an EE in a factory. Company I work for is global, lots of employees, plants, capital, etc. We are going to add a new production line in my department. It’s not supposed to be operational until late next fall. We’ve been approved to add it and ironing out the details for several months already. Now, we are likely a bit inefficient and the COVID situation is absolutely slowing us down. But then again, COVID would slow everyone down.

So let’s say Federal “says yes” and starts to add a new primer assembly line. Let’s say they’re more efficient at moving the ball downfield than my plant and they go from “yes let’s do this” to production in 18 months. Now let’s add three months for the gremlins to get worked out of the new machine (personal experience there too). So we’re at 21 months before this thing is helping. Do you want to bet the company’s future that this current panic will still be going on by then?

Another item: if there’s a bottleneck in the supply of raw materials before they get to the shiny new primer line, then the shiny new primer line gets to sit idle. So now we’ve said yes to a capital project based on a temporary demand spike that’s not going to help the problem because we can’t “feed” it.


So how do we stop the problem? Everyone stop buying ammo for, say, 3 months. Maybe longer. Let the shelves fill up. Then you have a supply of product that’s sitting on retailers shelves. As it sits, unmoved, the pressure will rise to lower the price to make it move again. If you’re sitting on a pile of ammo, do not buy anymore for longer than the three months I’ve proposed. Once people aren’t paying these exorbitant prices for the product, the price for the product will come down. Let capitalism solve the problem.

[farscott]

Reading this thread, I get the sense that some people do not understand how badly COVID-19 has impacted supply chains. Setting aside the increased demand of firearms and ammo and just focusing on supply chain issues, there are raw component issues in just about every commodity. When manufacturing, any manufacturing, shuts down, there is a ripple effect for every product that relies on components no longer being made in a timely manner. For example, copper lead frames are the basis for the attaching many semiconductors to the printed circuit board (PCB). Gold bond wires typically run from the silicon die to the lead frame.

Due to COVID-19, one of the prominent lead frame companies in China shut down for about two months because there was no raw copper to turn into lead frames or no people to run the machines that turn the raw copper into lead frames. No one really knows which factor caused the issue although my best guess is no people to run the machines or deliver anything as China pretty much stopped for two months. That shutdown was in the first quarter of 2020. It has led to a shortage of lead frames that will not likely end until the summer of 2021. It has led to shortages of components significant enough to shutdown vehicle assembly lines, iPhone production, and medical supply manufacturing. Supply chains have been set up for quite some time to run hand-to-mouth or "just-in-time". When one component misses the schedule, everything is impacted. Right now, almost every component is hard to get.

Adding the increased demand, which no one thinks is permanent, means it will take a couple of years to "catch up". Something like three years of normal consumption of ammo and components happened in 2020. It does not make sense that the level of demand is sustainable. Especially if the raw component markets are impacted. So, if you run a business, would you increase capacity through investment or just run what you have 24/7? Most rational actors will do the latter, preferring to pay OT when there is enough materiel to run the manufacturing lines/processes. After all, new lines are expensive and can take years to return the investment. And what happens if there is not enough lead or copper to run the new lines at capacity? You lose more money. So, right now, the best bet is to run what you have.

[jetfire]

With a couple of notable exceptions, the cumulative knowledge of the ammo business in this thread wouldn't fill a fucking thimble. Jesus Christ.

[TGS]

With a couple of notable exceptions, the cumulative knowledge of the ammo business in this thread wouldn't fill a fucking thimble. Jesus Christ.

Well, 40 years ago I was paid to say, "Yes" and not, "No", so pah-rumph!

[Hambo]

So for the experts in manufacturing, how long will the current shortage of ammo continue, and how many months or years are we from returning to some semblance of normal? Leaving aside loaded ammo, what would it take to scale up primer production?

For everyone else, what can we do near term to get enough ammo at a reasonable enough price the shooting sports do not die? If our current shortage continues, USPSA and many other shooting sports will be severely damaged as shooters flat out are unable to afford enough ammo to participate. Savvy gun makers will soon realize that ammo shortages are a much bigger threat to their prosperity than Biden/Harris are, and may need to emulate Sig and start making ammo. If ammo shortages negatively impact sales, firearms manufacturers may be willing to invest in added capacity. Heck, the NRA or NSSF should look at seeding capital to increase production. If the Federal guy is right, 7 million new shooters will change the demand curve forever.

The answer to the first part is complicated. Demand reduced to normal, production increased to absolute maximum, all raw materials available in quantities sufficient to run max production. Then once the back orders are filled, you'll be able to buy as much as you used to. Given the timelines in this thread (order shipping times 2-3x normal), my guess is late 2022, if there isn't some executive or legislative action that jump starts the panic.

For the second part, same timeline IF a company wants to go into the ammo business. You were a VP, how long to acquire property, get permits, build, get equipment, train workers? That's assuming the new company can get materials.

What can you do? Pay the price or shoot less. Pay the price and shoot less. Even though I reload, I'm going to shoot less to stretch my supplies because I don't think I'm going to get more anytime soon.

[BehindBlueI's]

Semantics.

No, it isn't. If you're going to argue someone is a monopoly and that breaking them up is a good idea, who actually owns production facilities and how much control over their product line they have is very relevant and the difference between in-house, supplier, and subsidiary is important. Breaking up Federal does not change how much ammo gets made at LC, and they don't even run LC so it seems pretty relevant. Why isn't anyone in this thread calling for Winchester to be broken up?

Let's be honest. It's because Winchester's CEO didn't make a cranky video. Because the OP and most posters have done zero research into the relative market strengths and shares of Federal but that guy was mean and prices are high right now, so let's break them up because that'll fix things...somehow.

I think GJM's main point was that having only a very small number of large manufacturers is driving prices up ( currently), limiting supply/availability (currently, though this is really more a supply/demand issue than anything controlled by the companies), possibly impeding technical progress in ammo tech, and perilously placing all of our ammo eggs in a very small number of baskets.

Ok. Show me how breaking up Vista increases supply. Breaking them up does not build new factories. Breaking the up does not create new sources of raw material or components. Breaking them up does not train new personnel.

Show me how a company with roughly 1/3 of the domestic market has the ability to drive up prices. Follow-up question, why was ammo demand so weak and prices so low in 2019 they were laying people off? Is that monopoly behavior?

Our eggs are in a few baskets regardless of what brand is on the existing factories for both ammunition and components. Yet how many new players have entered the arena? There's no shortage of companies that could do so. Sig is the only one, and there are zero new ammunition only companies. If there are zero completely independent ammunition companies in the US of any size, what does that say about the viability of any company broken up? Imagine we aren't talking about ammunition. Any manufacturing business and that's the data you have and I think it's pretty obvious the viability of the subsidiaries as completely independent businesses is very questionable. So, again, they either get acquired or they fail and get parceled out. The first option is where we are. The second reduces supply overall, and drives up prices. Do you think a company that is *not* vertically integrated with a primer company and a powder company would survive as well in the next Trump Slump sort of market? No, their production costs would be higher and they would have even more trouble surviving at depressed prices.