Bloomberg Businessweek:

In the 1970s, Colt and other American gunmakers, following the bad example of Detroit’s Big Three automakers, grew smug and lazy. Like Japanese and German car companies, more nimble foreign gunmakers grabbed market share. By the 1980s, Smith & Wesson had lost the U.S. police to Austria’s Glock, while Colt saw Italy’s Beretta snatch its main U.S. Army sidearm contract. In 1985, Colt plant employees who belonged to the United Auto Workers launched a protracted strike for higher pay. Replacement employees weren’t up to the task, and “quality suffered badly,” says Feldman, then an organizer for the National Rifle Association. In 1988 the Pentagon gave Colt’s M16 contract to FN Herstal of Belgium. Four years later, Colt filed for bankruptcy court protection from its creditors. “With the end of the Cold War,” says Hopkins, the firearms marketer, “it seemed like the company might never recover.”

[ … ]

Complicating matters, Colt then blundered into the vortex of American gun-control politics. In a December 1997 editorial in American Firearms Industry magazine, Zilkha’s handpicked CEO, Ron Stewart, made a pair of proposals that set off alarms in Second Amendment circles. He urged “the creation of a research and development program to further firearm technology toward more advanced methods that promote safety (such as personalized firearms).” And he recommended that Congress require gun owners to obtain a federal permit. “All hell broke loose,” says Feldman …

Zilkha relieved Stewart of his CEO duties in late 1998; by the following year the Colt smart gun was dead …

The withered commercial handgun business—by now reduced almost exclusively to producing copies of classic handguns—was left behind under the name Colt’s Manufacturing. The two companies shared the West Hartford factory. To the consternation of workers, a metal fence was erected to denote the corporate split …

Among other failings, the severed halves of Colt somehow missed the post-2008 “Obama surge” as much as other U.S. gun manufacturers. Whipped up by NRA warnings that the Democratic president intended to toughen gun control, consumers cleared gun store shelves of ammunition and weapons. Better-prepared manufacturers such as Glock saw sales rise sharply. Under the terms of the Colt split, however, Colt Defense could reach the booming civilian market only by first selling its rifles to Colt’s Manufacturing, a debilitated company with sclerotic lines of distribution. Colt’s Manufacturing, for its part, offered only a limited selection of the handguns so much in demand. …

S&P projects that company revenue will fall by 5 percent to 15 percent in 2014. It cites “declining commercial rifle sales as demand returns to more normalized levels following a surge in recent years” and a sharp reduction in Pentagon demand for new M4 rifles following the end of the wars in Iraq and Afghanistan. “The government’s plan to shrink the size of the Army also poses a threat to long-term demand for the rifle,” S&P notes. On May 14, Colt reported that revenue for its first quarter of 2014 slumped 22 percent, to $50 million. The company suffered a loss of $7.8 million for the period. During an investor conference call, CEO Dennis Veilleux said, “I’m not pleased with these results.”

Ignoring the source (Bloomberg), this is actually good reporting and analysis and a good rundown of the troubles that have plagued Colt.

Colt got fat from military contracts, lost control over good QA, and lost interest in the civilian firearms market.  This happens often to manufacturers for the military, since making milspec parts means that there is very little innovation and contracts aren’t as flexible to customer feedback as in the civilian market.  Soldiers and Marines have to use what they’ve been issued.  I get to choose my guns, and hence I have a Rock River Arms AR-15 instead of a Colt.  I have always said that a gun isn’t truly tested until it hits the civilian market.

There is one aspect of Colt’s demise that isn’t mentioned here, and that is the role of labor unions.  All gun manufacturers in Northern states (which are not “right to work” states) have suffered from the same erosion of quality and cost problems or they will in the future.

The lessons for all gun manufacturers should be clear.  First, labor unions kill companies.  The future of industry is in right-to-work states.  Second, any flirtation with gun control is death to a gun manufacturer.  Gun owners punish cooperation with gun controllers.  Third, fat-ass government contracts tends to corrupt a company.  The most healthy market for guns is the civilian market.  It also happens to be the least fickle and most reliable.

Finally, overseas production (in Japan, for instance) is a loser proposition.  I turned down the chance to buy a Browning bolt action rifle because of that very thing (made in Japan stamped on the barrel), and thought that Winchester rifles were now made exclusively in Columbia, S.C.  I later found out that parts are now made in Columbia, while assembly is done in Portugal.  Instead I purchased a Tikka T3 Hunter 0.270.  In other words, I went with a foreign manufacturer who actually knows how to make guns.  The Remington and Ruger bolts were so loose they flopped like dog ears.  The Tikka was tight and is a tack driver.

Bottom line: move South to right-to-work states, make guns for the civilian market, make them well, and avoid the corruption that goes along with being in bed with the government.  It’s too late for Colt.  They will go belly up before long.  It isn’t too late for others – you know who you are.