July 2 (Bloomberg) -- The road to financial success started in H.J. Mennie’s garage in rural Illinois, where the tool and die maker built a parts-manufacturing business selling to Fortune 500 companies from Caterpillar Inc. to Cummins Inc. His strategy worked for four decades, until the last recession and global commerce’s volatility cut into the firm’s profits and workforce.
H.J.’s children now run Mennie Machine Co., and they’re turning to what they believe is the great economic equalizer: producing semiautomatic rifles and handguns to satisfy growing American demand. The factory last week shipped its first orders of the AR-15, which ranks among the most popular guns in the nation. A variant of the weapon was used in the Dec. 14 Newtown, Connecticut massacre that killed 26 children and staff.
The move comes as even Democrats in Illinois, the home state of President Barack Obama, remain divided over how to comply with a federal court order allowing residents to carry concealed weapons. Amending a bill the legislature passed in May, Governor Pat Quinn today sought to limit such guns to one per person and restore the power of local governments to enact their own ordinances -- the same kind of measures that create business opportunities Mennie says it can’t ignore.
“Every time somebody wants to take something away from you, what’s it do to the market? It makes it go up,” said David Mennie, vice president of the company based in Mark, Illinois, a town of 500 located about 110 miles southwest of Chicago. “It’s all a plus for this industry.”
Quinn’s so-called amendatory veto also would limit to 10 the number of rounds of ammunition in a clip and ban concealed weapons in bars and restaurants serving alcohol. Still, Democrats who lead the legislature that passed the measure have expressed confidence they could muster the votes to override Quinn’s action.
“I don’t believe in compromising public safety,” Quinn told reporters in Chicago. “I don’t believe in negotiating public safety. And I don’t believe that the National Rifle Association is an authority on public safety.”
Such criticism aside, Mennie plans to produce handguns soon and is studying the idea of making ammunition as well. The 18,000 to 24,000 semiautomatic rifles it projects making each year will sell for $1,100 to $1,600.
Mennie’s plant, surrounded by corn and soybean fields, features a white facade with Greek columns and accented with statues of women. It resembles a casino, an unintended symbol of the political gamble of diversifying into gun production.
David Mennie acknowledged there is risk, given the criticism from gun-control advocates of Smith & Wesson Holding Corp. and Sturm Ruger & Co., resulting in some public pension funds dumping their stocks. One customer that family-owned Mennie declined to name expressed reservations about the move into weaponry.
“Yeah, there’s been some concern,” Mennie said. Still, “they understand our philosophy and why we’re getting into this.”
While Mennie will continue to produce parts for transmissions, fuel pumps and other machinery for Caterpillar Inc., Cummins Inc., Allison Transmission Inc. and others, gun production will give them the flexibility to sell individual weapon parts, if necessary, to dealers or on eBay, Mennie said.
Specially made component parts for an individual firm can go unsold if that company’s domestic or overseas sales slump, “and we can’t sell the product to anyone else,” Mennie said. The company is affected, for instance, when business slides for Caterpillar. The world’s largest maker of construction and mining equipment reported June 20 that retail machine sales fell in every region except Latin America.
Mennie expects firearms to generate more reliable revenue that would insulate it from economic downturns. Eventually, they could account for as much as 25 percent of its business, he said.
The factory cut its workforce of 330 in half after the recession that began in December 2007. The company, with $45 million in sales last year, was looking for steady income, “something to have some long-term growth,” Mennie said. “That’s what pushed us into this.”
Politicians, led by Obama and his advocacy of gun restrictions, have helped spur firearm sales. Smith & Wesson reported $588 million in sales in its latest fiscal year, up 43 percent from the 2012 period. Sturm Ruger said sales spiked 49 percent in 2012 to $492 million.
“I would say he’s the No. 1 salesman for the gun industry right now,” Jake Cimei, Mennie’s purchasing manager, said of Obama.
A recent survey by the National Shooting Sports Foundation, a trade association for the shooting, hunting and firearms industry headquartered in Newtown, reported that retail sales in 2012 exceeded those in 2011. Purchases of AR-type weapons led all others. Twenty-six percent of buyers were purchasing a weapon for the first time last year, compared with 21 percent in 2010, the group said.
Federal Bureau of Investigation records show a sharp increase -- 46 percent in the first quarter of this year -- in criminal background checks required for gun purchases. Texas filings in 2012 rose 24 percent over 2011 to 1.4 million and Florida’s jumped 30 percent to 834,000, according to FBI data.
“Certainly there’s been a dramatic surge in consumer demand for firearms,” said Rommel Dionisio, an analyst at Wedbush Securities in New York. “Fears of these bans have prompted waves of consumers to buy rifles and pistols.”
After the Newtown shootings, gun-control backers pushed for a ban on some semi-automatic weapons, though the U.S. Senate defeated the measure in April along with a proposal to expand background checks on firearm sales.
While some lawmakers are renewing the push for restrictions, it’s unlikely the current pace of gun sales can be maintained, Dionisio said, because those moved by fears of more restrictions are purchasing now.
“Next year they won’t need to buy them,” he said. “Our belief is the surge comes to an end.”
Mennie said the company will soon design a handgun -- probably a 9 millimeter -- for production later this year and is conducting a feasibility study into manufacturing ammunition.
“Handguns now are the hot ticket,” Cimei said.
They’re also at the heart of the fight in Illinois, which was ordered by a federal judge Dec. 11 to enact a law allowing citizens to carry concealed weapons. Quinn repeated his criticism of the ruling today in issuing his amendatory veto.
Just last week, Chicago Mayor Rahm Emanuel proposed stiffer penalties for gun crimes near schools. He’s also trying to tighten the city’s assault-weapons ban after he criticized the bill approved by state lawmakers in May.
Illinois’s pending changes won’t have a major impact on Mennie sales, company officials said, because it plans to manufacture and distribute nationwide. Beyond that, President William Mennie said, the gun business may slow -- until policy makers say something else to energize the market.
“Every year there are certain politicians that bring this up,” Mennie said. “Every single year.”
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