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Supply, demand, the law and prices: how legislation drives gun values.

Supply, Demand, the Law and Prices How Legislation Drives Gun Values

It is important to never forget that the selling value of guns is completely a function of supply and demand. Most of the time with new guns that are in production, the supply fills the demand and prices are stable. Once in a while something will happen that will effect either the supply or the demand and the price will go up. A good example occurred when the Dirty Harry movies created a large demand for S&W M29 .44 magnums. The demand greatly exceeded the supply and they often sold for higher prices fifteen years ago than they do today. An example of what happens when the supply is cut off occurred recently when Colt Industries forced Colt Firearms to "voluntarily" stop the sales of civilian semi-auto AR-15s. The prices literally skyrocketed nearly 50%.

Whenever the dynamics of the market situation cause such effects on new guns it often effects the very same models in used guns to an even higher degree. If in excellent condition, such used guns will often bring nearly the same prices new specimens will bring. This occurred during the Vietnam war when certain S&W handgun models, like the Model 39 and Model 60, were in particularly high demand for use as personal sidearms by troops on orders to Vietnam. Because they often did not have time to wait for new specimens to become available they would typically pay nearly as much for second hand pieces.

These fluctuations of the market place are bad enough but unfortunately all three branches of our government, particularly the legislative and executive branches, can have a huge and immediate effect on the market value of many new and used guns by passing legislation or making rulings that effect the supply or demand. A little over twenty years ago we saw it happen with the passage of the Gun Control Act of 1968 (GCA 68). One aspect of the law prohibited the importation of military surplus firearms. As a result of this termination of supply, we saw many military surplus guns increase in price from 100% to nearly 1000% depending on popularity and demand. Good M1 Garands rose from about $90 to $350 or more, in just a few years. Similarly decent M1911A1 .45 autos went from about $45 to nearly $250 in the same time. There were similar increases for the more desireable Mauser rifles, the M1903 Springfields, most of the more desirable military handguns, and others.

Then in 1985 federal legislation was passed that allowed the importation of firearms classified as curios or relics by the BATF. This included all military bolt action and semi-automatic rifles made before 1946, most pre-1946 military handguns, and a fair number of post-1946 military rifles and pistols. Within a few years importers were able to bring in large quantities of military surplus firearms. Many items which were previously uncommon to downright rare, such as Swedish M38 Mausers, Finnish Moisin-Nagant rifles, FN M49 8mm rifles, Egyptian Hakim and Rashid rifles, Chinese SKS carbines, Finnish Lugers and Inglis Browning pistols, became relatively common overnight. Market prices plummeted to one-half, or in some cases less than one-quarter of what they had previously sold for.

Some dealers who sold military firearms as a specialty were hurt badly by the change in the law because they saw the value of much of their stock drop severely. In one case I know of, an importer held over 100,000 military surplus rifles in stock since pre-1968 as a long term investment with the intention of selling them off a few at a time. Needless to say a sweep of the pen made his investment drop in value. In spite of this, most dealers welcomed the influx of military surplus arms as another opportunity to make profits.

Another part of GCA-68 gave the BATF jurisdiction in deciding what handguns could be imported based on the BATF's own arbitrary criteria for what constitutes a sporting handgun. The net result was the prohibition of the importation of many popular small handguns like the Browning Baby .25, the Browning M1910 .380, the Walther TPH .22, the Walther PPK, the small Astras and Stars and many others. With the supply of these fine pistols cut off, the prices of many jumped up considerably. Used specimens brought more than new ones had previously. Eventually this situation moderated somewhat when U.S. manufacturers were able to fill the demand for such small handguns. Still, a simple and arbitrary ruling by a government agency had a tremendous effect at the market place.

Yet another example of how a government ruling can effect values occurred in 1983 with a different BATF ruling. Since the 1930's the Feds had ruled that handguns accompanied by shoulder stocks came under the prohibited category of short barreled rifles in the National Firearms Act. Consequently they had to be registered and a $200 transfer tax paid on each transfer. Mere possession of an unregistered example could elicit a 10 year jail term and a severe fine. This was all ridiculous since a handgun with a shoulder stock was less concealable and less suitable for criminal use while at the same time being more suitable for sporting purposes. Who said that government rulings had to make sense? Fortunately in 1983 some enlightened individual in the BATF made a ruling that made most of the military pistols designed to take shoulder stocks legal to own without registration even when accompanied by their shoulder stock. Pistol shoulder stocks started appearing out of the woodwork and market values went up several hundred percent. In this case the BATF ruling did not effect supply, it effected demand but the net result was the same.

By far the most vivid example of how the market value of both new and used guns can be effected by a government ruling occurred recently with President Bush's ill advised "temporary" ban on the importation of many semi-automatic firearms with military styling. The ruling obviously effected the supply but it also effected the demand because many people decided that they should obtain one while they were still available. The major center of attention was the various semi-auto copies of the Soviet AK that were on the market. Market prices on paramilitary type rifles and pistols doubled almost overnight as dealer and distributor supplies dried up. There was a short period of panic buying the likes of which I have never seen before. When Colt announced its voluntary freeze on the sale of civilian AR-15s the panic was fueled with rumors that Ruger and other U.S. manufacturers were following suit. Ruger Mini-14s commonly sold for over 50% over retail for a short while even though Ruger kept up production and sale of Mini-14s.

When the market prices on the paramilitary weapons got so high so fast an interesting phenomenon occurred. Thousands of owners of such guns decided they would rather have the money than the guns. The gun shows in particular experienced an absolute glut of the paramilitary rifles and the prices soon dropped back down to about 20% over the former retail or less. Also as the word finally got out that the Ruger Mini-14 was still in production and being sold, the prices on them dropped back down to conventional retail. Needless to say customers who bought new or used Mini-14s at the highly inflated prices were not too happy. Many dealers that told customers that Ruger had ceased selling the Mini-14 to encourage customers to pay inflated prices, developed a great deal of ill will when the customers found out better.

Then President Bush made the temporary ban permanent in spite of the fact that statistical analysis showed that these weapons are used in an extremely small percentage of homicides and that in virtually all such cases a more conventional firearm or other weapon could have been used equally well. As this is written it seems the panic buying is back in full swing with regard to the guns on the permanent ban list.

Unfortunately we dealers are caught in the middle in all this. Should we buy such guns and hold them for a while or should we just move them as fast as we can? I wish I knew the answer. If Colt should put the AR-15 back on the market tomorrow, that second hand AR-15 HBAR on your rack that you paid $1000 for in anticipation of making several hundred dollars profit, will be worth considerably less than you paid for it. If domestic manufacturers start producing copies of the FAL, the HK-91, the UZI, the AK's and others on the import ban list, the value of the imports will fulfill at least part of the demand for such guns.

Bush is even supporting a ban on the manufacture and importation of magazines of over 15 round capacity, with registration of such magazines that are presently owned to the tune of $25 per magazine. Many dealers routinely stock 100 or more such magazines for the M1A, M1 Carbine, Ruger Mini-14, AR-15, Glock 17, ad infinitum. If such a law passed it would be a financial disaster as well as a Constitutional one.

I do not have any answers on how to make your business decisions to protect yourself from the potential ill effects of government laws and rulings. Neither do I have an answer on the best way to take advantage of such rulings to make windfall profits. My best advice is to stay on top of what our lawmakers and executive branch are up to. Also get politically involved and work for the good of all the firearms industry. We dealers are largely at the mercy of the government when a simple ruling can make guns and other items we stock worth more or worth nothing in a sweep of the pen. Just be aware of the possibilities and get involved.

PHOTO : Many military style semi-automatic rifles like this Springfield Armory SAR-3 had their supply completely cut off by President Bush's import ban. This caused prices to go through the roof overnight. Dealers are caught in the middle of such situations.
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Title Annotation:used firearms
Author:Karwan, Chuck
Publication:Shooting Industry
Article Type:column
Date:Dec 1, 1989
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