Remington Arms Manufacturing Company's bankruptcy. A Distributist Economic Lesson and a National Tragedy. And Chrysler Too.

Remington Arms Manufacturing Company filed for bankruptcy the Sunday before last.*

It's a national tragedy, truly.  The fact that some will rejoice in this shows how effete and pathetic the society has become, indeed to such an extent that its truly a crisis in our own society.

There's a lot of analysis out on this right now, some of which is correct, but much of which is quite shallow. The common commentary, correct in so far as it goes, is that Remington is a victim of the Trump Slump.  An irony of the recent history of firearms sales in the US is that Barack Obama was the, as wags had it, the greatest gun salesman in the nation's history, and indeed, starting with Hillary Clinton's first run against Obama in the primaries there was an over eight year boom in firearms sales.  A lot of those sales were of things that people thought would soon be banned, but it was nonetheless simply amazing in extent.  Ammunition cleared the shelves out of fear that laws restricting ammunition sales would come in make ammo hard to get.  Sales of AR type rifles when through the roof.  The NRA, which of course is the primary organization that campaigns to protect the rights of gun owners, frankly grossly overplayed their hand, to the long term determent of companies like Remington, by keeping up an eight year panic educing campaign against President Obama when in fact he did nothing at all in regard to firearms for almost the entire eight years.

 Remington's advertising has always focused on Remington being a manufacturer of sporting, primarily hunting arms. This stands in contrast with some other companies, such as Colt, who emphasized other roles of their arms.  Even today Remington strives to set apart its AR type sporting rifles from those manufactured by other companies on this basis, if they are sold under the Remington name.

But after Trump won the sales slumped, and indeed to some degree went into a tailspin.  People haven't been afraid that there would be bans.  Trump was endorsed by the NRA in a way that no other President ever has been, further alleviating the fears of gun owners.  Indeed, even with all the recent talk of gun control, including some suggestions by Trump that he'd support some of it, there hasn't been a huge national reaction on the part of gun owners, although there has apparently been a bit of a one on the demand side that has a national impact.

This, we are told, hurt Remington as Remington is a major manufacturer of AR type rifles, and indeed it is.  Remington has manufactured M4 carbines for the military, starting in 2012, but it also owns Bushmaster, one of the better manufacturers of AR type rifles including some really fine competition versions of the rifle in the M16A4/A5 style.  At any rate, Remington was heavily into the AR platform and now, the story goes, is really suffering for it.

And that's partially correct.

But only partially.

What Remington is also suffering from, in a major way, is corporate conglomeration.  Remington could frankly benefit from some Distributism, but then, so could the entire nation for that matter.  Too bad that this hasn't been a recent policy of the United States such that what happened to Remington, would not have.

 Remington has made a semi automatic sporting rifle since 1908.  It's had a sporting semi automatic rifle almost continually since then, but its association with Bushmaster ended up causing Remington to fully adopt the AR type rifle into its lineup, in the guise of being a modern hunting rifle, and that in turn meant that Remington was competing against itself.

Remington has been in existence since 1816.  It was founded Eliphalet Remington in that year (indeed the "ERA" on World War One Eddystone M1917 Remington stands for E. Remington Arms, not Eddystone).  It's had its up and downs.  It almost went bankrupt in fact, immediately after World War One.  Remington was a major manufacturer of Mosin Nagant Rifles for the Imperial Russian Army, P14 rifles for the British Army and M1917 rifles for the U.S. Army during the Great War, dedicating two plants to that latter task (Winchester also had one).   The collapse of Imperial Russia put it under severe stress, but that was relieved when the United States purchased the existing stocks of Russian rifles, which it did in turn use for the American commitment to Russia during the war. Remington switched its P14 production over to M1917 production, the two rifles being the same design distinguished only by cartridge, shortly after the US declared war and found itself short of M1903 Springfields. 

When the war suddenly ended in November 1918, the contracts were cancelled virtually overnight.  That nearly drove Remington under, although it struggled by and picked up the pieces, literally, converting them into the fine sporting rifle, the Remington Model 30.  Even at that, the company struggled. The lesson was so stout that when World War Two Remington was very reluctant to enter into military contracts, although it did, ultimately producing the M1903s that were used by the Army during the Second World War, albeit on equipment that had come form the government itself.  It also manufactured other weapons during Second World War and was positioned, unlike Winchester, to exploit that in the post war economy, which unlike the post Great War economy, did not slump.

Nonetheless following World War Two Remington, as an independent company, did not seek nor desire military sales.  It didn't seek to make M1 Garands during World War Two or the Korean War.  When the service sought outside suppliers, early on, for some components of the M14, it didn't seek to acquire those contracts.  It didn't introduce a 5.56 rifle for consideration even though it was the company that had developed the round, for sporting use (the 5.56 is the .223 which was developed from the .222 Remington) , that was basically under consideration even though its manufacturing was every bit as advanced as Armalites.  It didn't seek to acquire M16 contracts during the 60s, 70s, and 80s when many such contracts were entered into.  It never sought foreign military sales.  The only military rifle it offered for decades was the sniper variant of the Remington Model 700 hunting rifle, which is something that was only made in small numbers and which, by its very nature, said a lot more about Remington as a supplier of sporting rifles than it did anything else.

Indeed, while its counter-intuitive, firearms manufacturers do best when not basing their sales on military contracts, and at least to an extent the civilian versions of them.  Colt's heavy dependence on the M16 for sales came at a time when it was having real problems and it can be argued that its reliance on the AR to carry it through in fact failed.  Going all the way back to the immediate post Civil War period, manufacturers that heavily depended on military sales, such as Spencer, tended to fail when the crisis was over even if they tried to translate those sales into a civilian market.  The big exception to the rule is in handguns, but the oddity of that is that handgun manufacturers have tended to lead military designs by years, and so when the service purchases a new handgun, it is frequently acquiring something that was already developed or partially developed for the civilian market, in the United States.

 Colt is a real exception to the rule in traditional American firearms manufacturing advertising.  While it is not the only example, Colt advertised on the basis of its military contracts on occasion, such as here.  Colt also emphasized that its handguns provided solid protection, anticipating (but not wholly uniquely) the modern carry movement.  In contrast, nearly every longarm manufacturer, Remington included, completely avoided military themes in their advertising and relied instead on depicting their sporting and hunting uses.

So Remington survived two centuries without going bankrupt.

And then entered Cerberus.  Cerberus Capital Management, L.P. is a private equity firm, specializing in "distressed investing".  If the name sounds familiar to you and you aren't a student of economics, that may be because you recall the hideous three headed dog that haunts Hell in various works, such as Dante's Divine Comedy, where he eats the tortured souls of gluttons.

Now, to be fair, Remington ceased to be a family owned company in 1888, when the Remington family sold it to a holding company that also owned, at that time, Winchester, ironically enough.  During the Great Depression it was purchased, along with United Metallic Cartridge, by Dupont, the gunpowder manufacturing company.  Real disaster started to set in, however, in 1993, when Dupont sold it to the investment firm of Clayton, Dubilier & Rice.  In June 2007 Cerberus Capital Management bought the company from Clayton, Dubilier & Rice for $370,000,000 and thereby acquired $252,000,000 in assumed debt.  

Prior to Cerberus purchasing Remington, it had already purchased Bushmaster and put it into a moronically named entity it called "Freedom Group", which was formed as a firearm's manufacturing holding company.  The founder of Bushmaster, which as noted simply specialized in AR platform rifles, took $70,000,000 in that 2006 sale.

Cerberus folded Remington also into Freedom  Group, but since that time that dumb ass name has been changed to Remington Arms Company, with Cerberus thereby choosing to keep the name of the most well known entity as the name of the holding group..  Somewhere along the way, since Cerberus took over, Remington picked up Advanced Armament (silencers), Marlin Firearms  (which already owned H&R Firearms) and Para USA, a Canadian company, originally, that specializes in M1911 pistols.  Para USA has ceased to exist entirely with its M1911s being made under the Remington name.  H&R has ceased to exist entirely.

And hence the current disaster. 

Due to Cerberus' swallowing up of assets what had been five firearms manufacturing companies, all occupying separate and distinct niches, and of which only two competed against each other (Marlin and Remington) has become effectively one, with three major brand names.  Marlin, which had a distinct product line, continues to.  H&R is dead.  Para Ordinance, which became Para USA, is now fully absorbed by Remington, in a move that absorbed its product line into Remington but which may not have absorbed its fan base at the same time and, because M1911s are past any patent restrictions, only gave Remington a minor advantage, if any at all, through the acquisition.  Bushmaster, which Cerberus claimed it was going to divest itself of, still is owned by Remington and Remington has gone whole hog into the AR product line including having secured, as noted, a contract for M4 carbines.

All of which suggest that Cerberus knew nothing about the firearms industry and nothing about the companies it was acquiring.

So what is Cerberus?

Well something can be discerned about it simply because its named for the three headed hound that in mythology guards the gates of Hades. It's an acquisition company, which virtually by definition, and filtered through my cynicism, exists to acquire, and divest when necessary or advantageous, companies.  It owns or has owned the following, or has acted in concert with the following:

• Cerberus entered into a financing deal with satellite imagery company GeoEye to the tune of $215,000,000 in March 2010.
• That same month Cerberus acquired an ownership stake in Panavision as part of a debt restructuring agreement with shareholder MacAndrews & Forbes.
• Also that same month Cerberus agreed to buy Caritas Christi Health Care, now Steward Health Care for $830,000,000. Caritas Christi was rebranded Steward Health Care^.
• In April 12, 2010 Cerberus acquired private government services contractor DynCorp International for approximately $1,000,000,000 and the assumption of $500,000,000 million of debt.
• In November 19, 2010, Cerberus and Drago Capital acquired a a real estate portfolio consisting of 97 bank branches from Spain’s Caja Madrid in a 25-year lease back transaction.
• On March 17, 2011, Cerberus acquired the senior bank debt and completed a debt restructuring of Maxim Office Park, a one million square foot office and logistics complex in Scotland
• On March 31, 2011, Cerberus acquired a real estate portfolio of 45 Metro Cash & Carry properties in Germany^.
  
• On May 16, 2011, Cerberus completed the acquisition of Silverleaf Resorts^.
• On May 16, 2011, an affiliate of Cerberus agreed to acquire the U.S.-based global billing and payments unit of 3i Infotech Ltd. for $137,000,000
• On October 4, 2011, Cerberus and Garanti Securities formed a joint initiative to pursue investments in Turkey with an initial commitment of $400,000,000
• On October 19, 2011, Cerberus chose J.P. Morgan Worldwide Securities Services to provide fund administration and related securities services for Cerberus investment funds.
• On October 27, 2011 Cerberus and Chatham Lodging Trust purchaseed Innkeepers USA Trust for $1,002,000,000. Innkeepers operates various hotel,s including the Marriott, Hyatt, and Hilton
• On December 22, 2011, Covis Pharma, a specialty pharmaceutical company owned by affiliates of Cerberus, aquired full commercial rights for Fortaz (ceftazidime), Zinacef (cefuroxime), Lanoxin (digoxin), Parnate (tranylcypromine sulfate), and Zantac Injection (ranitidine hydrochloride) in the United States and Puerto Rico from GlaxoSmithKline.
• On March 8, 2012, an affiliate of Cerberus acquired a controlling interest in AT&T Advertising Solutions and AT&T Interactive, which were then combined into a new entity YP Holdings LLC. AT&T received approximately $750,000,000 million in cash, a $200 million note and a 47-percent equity interest in YP Holdings LLC.
• In January 2013, Cerberus acquired 877 stores in the Albertson's, Acme, Jewel-Osco, Shaw's, and Star Market chains from SuperValu for $100,000,000 and the assumption of $3,200,000,000 of SuperValu debt.  On March 6, 2014, Cerberus followed by announcin a Definitive Merger Agreement with already owned Albertsons and Safeway.
• On December 17, 2015, Cerberus Capital Management announced a $605,000,000 strategic partnership with Avon Products, Inc. in which Cerberus acquired 80% of Avon North America and a nearly 17% stake in Avon Products, Inc.
• On January 26, 2016, Cerberus owned Keane, a well completion services company agreed to acquire the majority of Canada-based Trican Well Services Ltd.’s (TSX: TWC) U.S. assets for $247,000,000
• On June 23, 2016, Cerberus aqcuired, GE Money Bank, to an affiliate of Cerberus Capital Management^.
• On July 1, 2016, Cerberus Capital Management acquired ABC Group
• In February 2018, Cerberus acquired HSH Nordbank.

And this isn't all.  Cerberus has its hands, or paws, in everything.  It bought Bayer's plasma products business.  It acquired a paper business and Georgia Pacific's distribution and building products division.  It has an interest in Portuguese airlines.  It's a large government services contractor to the U.S. government. As noted above, its in the grocery business..

And its It's in the transportation industry.

In fact, and instructive in this story, it and 100 other investors purchased an 80% interest in Chrysler in 2007 for $7,400,000,000.  Of course, Chrysler, along with General Motors, went bankrupt in 2009.  As part of that bankruptcy, Cerberus, in exchange for the government buyout that then occurred, gave up its interest in Chrysler.  Don't cry for them, however, they ultimately recovered nearly all they had invested in the company through various financial arrangements.

So what do these things have to do with Remington?

Well, quite a lot in my view.

A quite a lot with the American economy as well.

Cerberus doesn't make anything, in a definitive sense.  It buys and sells other entities that make things.  Cerberus has no interest in the firearms industry, or the automobile industry, in a concrete fashion. They're interested in the money those entities make and they buy them in hopes of maximizing on that, or sell them for the same reason.

And that's wrong.

Cerberus is a type of entity that really shouldn't exist. They don't exist in order to manufacture anything, they exist in the hopes that what they buy will do well and they'll make money that way, or they hope to sell when its advantageous. They're all about money.

And they're into everything that seems likely to make money. The three headed dog is at the grocery store and in the sporting goods store.

And that's the problem with what the American economy has become.  It's all about making money.

Oh, John Sherman, where are you now?

John Sherman, author of the Sherman Anti Trust Act and lesser known brother of William Tecumseh Sherman.

John Sherman?  

Yes, John Sherman, who gave the country the Sherman Anti Trust Act.   A powerful bill that seems to have fallen into disuse recently and which, in my view, ought to be sued to chop two of Cerberus' three heads off and pull all the teeth out of the remaining one.

Oh my.  How anti business.

No, not so much. Pro business really.

Now making money is fine. But the truth of the matters is that, except for a really sick person, making money to make money isn't very satisfying.  Being poor is bad, but all the data suggest that being really rich doesn't make a person that much happier after a certain point is reached in the Middle Class.  Being free from want is one thing. Being obsessed with money is quite another. And an outfit like Cerberus is about nothing but money.

But companies actually tend to be about something else.

Remington Firearms was about sporting arms for the most part.  Yes, it made military arms, but that was never its focus and it sometimes actually avoided making them. But in the hands of those who lost sight of that it lost its way.  By acquiring Bushmaster and folding Bushmaster into it, a specialty AR manufacturer took over and started to taint Remington.  Remington began to incorporate AR type rifles into its sporting line and thereby actually compete against itself and damage its own product line. By picking up Para Ordinance it entered the field of pistol production with a pistol that was already widely manufactures (just like the AR was) by other competitors.  By picking up Marlin it acquired a manufacturer whose reputation, which was very good, was based in no small part on a rifle whose design had long been in the public domain and which they could have made without acquiring Marlin, if they really needed. All adding Marlin really did was to give it another production line to compete against itself in a certain area of centerfire hunting rifle and also against itself in the .22 LR product line.

So the story is, it would seem, that once companies become nothing more than trinkets for investment holding companies, they are doomed.  

Or at least they are doomed if they occupy a distinct place in the economy.

And what are these holding companies anyhow?  It's perfectly obvious that a company like Cerberus plays no really useful role in our economy, for the most part, and operates sort of like a pack of ravens, circling above the economic highway and coming down to feast on things that get hit there.

Or maybe an analogy to wolves would be better.

At any rate, no company can possibly have that much of an informed interest in anything, and for that reason, their role is ultimately always destructive to the larger economy in general. No economy really needs outfits like Cerberus.  An economy needs investors, but it doesn't need that kind or anything even approaching that kind. What Remington needed was ownership that knew the product.  Cerberus thought it knew the market, and it apparently thought, or allowed the management of Remington to think, that market was ARs. But it wasn't.

So, Remington is bankruptcy. Let's hope a result of that its that Cerberus has to shed Remington, but without the soft pillow that was there when it shed Chrysler.  And let's hope that Remington and Marline are separated.  Maybe even H&R can come back.  Bushmaster should continue on, but as its own company as well, just as it was back in the day.

So let's talk about Chrysler.

Eh?  I thought this was about Remington?

It is, but also about economics and outfits like Cerberus.  And so that takes  us to Chrysler.  

 Dodge Brothers trucks. Dodge didn't become part of Chrysler until 1928, after this 1920 photographs was taken.

Now, consolidation in the automobile industry is nothing new.  In the 1920s there were a zillion American automobile manufacturers.  Even during the Great Depression, which drove a lot of them out of business, there were more than there are now.  And every current automobile manufacturer is a conglomeration of several prior companies. Every single one.  

But what they were, for a long time, is a conglomeration of automobile manufacturing companies, just like I said.  Chrysler, however, has had a unique recently history.   In the 1980s and 1990s it both bought and was bought by European automobile manufacturers and it ended up being owned by Daimler, the giant German manufacturer.  Daimler, famous for Mercedes amongst other things, seemed like an ideal owners given its long history of manufacturing diesel vehicles, a Chrysler strong point, but in fact Daimler could never figure out what to do with Chrysler.  

In 2007 Daimler sold Chrysler to Cerberus, while retaining a 20% ownership in the company.  It didn't own it long, however, as the 2008 economic crisis pushed General Motors and Chrysler to the edge of bankruptcy and special bankruptcies ended up being crated for both.  Chrysler, in that process, shed a lot of its debt and emerged as a new company, free of Cerberus and Daimler.  In the process Fiat bought the company, and like Daimler, has been struggling to figure out what to do with it.  In the whole process Cerberus voluntarily gave up its share of Chrysler to the Federal government but retained its auto financing division.

Now, a person wouldn't think that was a big deal, but it really is.  Cerberus went on to sell that to another entity and made up all the money that it otherwise would have lost. They came out, therefore, okay.

Well, so what.

Well, just this.  Cerberus is good at making money, it seems, but it doesn't make anything.  Big finance is a necessary part of industry, but is this sort of finance really good for the economy?  Would lending from large banks and financial institutions make more sense?  I submit that it would.  Buying and selling these entities for profit generates that, but it doesn't necessarily generate longevity the same way that industries concerned about their industry would.

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*How odd to think that a company can file for bankruptcy on a Sunday.  You'd think that you'd have to wait until the weekday to do that.