[ Bankrupt Making Guns During War ]
Hi guys, thanks for tuning in to another Q&A video on Forgotten Weapons.
I'm Ian McCollum, and our question today comes from Jubs on Patreon, who says,
"They say that 'no one's gone bankrupt making guns during a war,' but is that actually true?"
Well, yeah, most of the time it is true.
Making weapons during wartime is usually a pretty solid business plan.
However, it is not so solid that enough dumb decisions can't put you into bankruptcy anyway.
And we have a really good example of this in the Hopkins & Allen Company during World War One.
So for the record, my reference on this particular question is
Allied Rifle Contracts in America
It's a great book, it covers the contracts for all sorts of different rifles
made for the European Allied powers in the US.
Mosins, Winchester 95s, Mausers, Enfields, you name it.
Now the Hopkins & Allen story actually starts with what was called
the Imperial Contracting Company of New York, New York.
Which was actually basically 8 guys who got together and realised that,
"Hey, World War One has just started, it's early 1915,
and all the Allied powers are really going to need a whole lot of guns.
And where's all the manufacturing got to take place? It's going to happen in the United States.
The US is a neutral power that has a massive amount of industrial capacity,
and is going to be more than happy to take all sorts of money from Europe and turn it into guns."
And they figured they could get in on this, they got together,
formed the Imperial Contracting Company and convinced the British War Department
that they were representing a whole bunch of New England firearms manufacturing companies,
or companies that could manufacture firearms.
Now the reality at this point is they kind of represented nobody except themselves.
And the plan was, "Let's get a contract and then, hey, how hard can it be?
There's lots of factories here, we'll find someone who can make it, and then presto, we make a lot of money."
Now the British were looking for a contractor to manufacture SMLE rifles.
This would never actually happen by the way, but they wanted 400,000 SMLEs by the end of 1915.
By I think it was actually December 15th of 1915.
And there's a lot of competition for manufacturing facilities in the US.
The Russians have a bunch of contracts going, the French have contracts going.
Every gun company who has a big factory has more potential orders than they can take in.
Remington being a great example of a company that took in
way more contracts than they were ever able to actually manufacture.
But that's part of why the British are kind of willing to be fooled by the
Imperial Contracting Company into thinking that, "Hey, these guys probably do have a factory."
And within a couple of months the British government does in fact give Imperial a contract
for 400,000 Enfields to be delivered by December 15th 1915 with, importantly, no money down.
So with this in hand, Imperial now needs a factory.
Well, they have been in talks with a number of
smaller shops, tool companies basically, drill companies.
Interestingly Starrett, a company still known today for making really good gauges, is one of them.
There's a consortium of four or five of these small tooling companies that get together,
they form a new corporate structure which they call the Springfield Arms Company.
Which of course sounds like a great historic trend, like if you want to convince people
that you have a lot of indigenous firearms manufacturing capability
with a long history in the US, what better name to use than Springfield?
So they do this, they get together with the guys at Imperial,
and the contract is transferred from Imperial, who are essentially eight guys in an office,
to Springfield, who are essentially a handful of small shops who still don't have a gun factory.
We're now into the spring of 1915 here.
... Oh, and by the way, the guys who were running Imperial ... they're staying in this contract,
they're ... staying in the financial dealings, they're just moving the official contract to Springfield.
Springfield then goes and talks to Hopkins & Allen. Now Hopkins & Allen had been a
pretty substantial player in the civilian firearms market in the United States.
They got really big ... after the Civil War making civilian guns.
They had a big setback around 1900 when their factory burned down, but they rebuilt it.
They were a well-known production house, good reputation and all that.
Now, where they start to run into trouble is with this contract.
So they are approached by this consortium of financiers and small tool shops,
who offer to essentially combine forces to make this contract.
And there's a lot of confidence that, "Hey, there's a lot of big fancy New York bankers involved in this,
and we've got a lot of really skilled tool makers involved in this."
And they're working with the town of Norwich where Hopkins & Allen is located,
and everyone thinks this just seems like it can't possibly go wrong.
Despite the fact, by the way, that the current Hopkins & Allen factory
does not have the ... capacity to produce this many guns.
They're going to have to build a whole new factory to do it.
And people don't take seriously enough the fact that this contract included no money down.
So by the time the whole deal is concluded, Hopkins & Allen is brought in.
They form a new corporation to do all this manufacturing.
The initial guys at Imperial are still peeling their money off of this, they're still involved as partners.
And then ... fairly quickly people realise like,
"Oh crap, now it's the summer of 1915, and we have like five and a half months
to produce 400,000 rifles, we have no money down, we don't have a factory big enough to do it."
And like even if everything worked perfectly, five and a half months is an incredibly short time period
to actually put together all the tooling to make these guns.
They didn't get a tooling package from the British,
they got 10 sample rifles, and presumably a package of drawings,
but they still have to build all of the fixtures, all the jigs,
all the machining parts to actually make these guns.
Today you can look at a CNC and say, "OK, well you're going to just clamp
a piece of metal in and you write the program to do ... the stuff.
But then you just copy the program to all your CNC machines and you can scale it up really easily, right?"
Well in 1915 the way this sort of manufacturing worked
is ... if you have one very complex part, like the receiver of a rifle.
And let's say it's got 50 different cuts that have to be made on it.
You're going to have basically 50 milling machines in a row,
every one of them with a specialised cutting tool to make one particular cut on each part.
And the part goes from one machine to the next, to the next, to the next.
And so in order to get ready to produce guns, you have to make all of that tooling.
And that takes time, and it takes skill, and it's not trivially easy.
Usually what will happen is they'll build all the tooling,
and then they'll do a pre-production run of guns to work all the kinks out.
Because there are inevitably going to be little problems that you have to fix.
Hopkins & Allen, there's no way they can do this in time.
So they appeal to the British government to say, "Hey, can we push the time frame back a little bit?
How about we get you 150,000 rifles by December and the rest by ... halfway through 1916.
The British have ... already been kind of sceptical about this whole company.
One of the British purchasing agents in the US who's working with other companies,
has looked at this deal and he's like, "These guys don't have a factory.
I think that one guy in the group who says he's a British officer is actually a fraud.
I think he's like a retired Australian territorial or something.
This doesn't look good, you guys shouldn't go through with this."
Well, the British go through with it anyway, but ... basically their suspicions are kind of confirmed
when Hopkins & Allen comes to them and says, "We can't do it."
They refused to modify the contract.
And that leaves Hopkins & Allen with they've shut down their civilian ... gun production
in anticipation of doing this contract.
They've started working on getting tooled up for it,
but ... there's no way they can meet the contract.
And now they're not going to get any money, because they're not going to be able to
deliver on the terms of the contract, so the British aren't going to have to pay them.
Now Hopkins & Allen appears to be well and truly screwed.
But like that may have been recoverable, and in fact they found a clever way out,
a miraculous way out really, and that is the Belgian government.
So the Belgians are over here in [America] at the same time
with a very significant need for guns.
The vast majority of Belgium has been occupied by the Germans,
including the gun making areas like Liège. And the Belgian Army needs some Mausers.
So the Belgian Army is trying to get a contract to have an American company make them Mausers.
And they run into trouble because they're a small country,
they have a smaller order than everyone else. They need I think it was 140-150,000 guns.
As opposed to the half a million, or million or more guns that, say, the Russians are contracting for.
The Belgians don't have the money to make a down payment.
Basically their contract's just not nearly as enticing as everybody else's.
And so all the factories that actually can take on this work and deliver it,
take the really enticing contracts, like two million Mosin-Nagants for the Russians.
Well here's Hopkins & Allen, who find themselves quite suddenly
with a rifle factory and no ... usable contract to make rifles,
and they desperately need a client. And huh,
So they grab the Belgian contract to make Mausers for the Belgians, Model 1889 Mausers.
The problem is in their desperation they under-bid that contract.
And they agreed to make the guns for what would turn out to be something around
10% less than it actually costs them to do it.
So the timeline terms are acceptable,
this is a contract that they can actually fulfil which is really good.
And so they tool up to do it, they start producing guns, they start shipping guns.
By the way, they build a whole new factory to do this with,
which puts them into significant debt,
... millions of dollars in 1915 of debt setting this whole project up.
The idea is well the returns on the rifles will pay off all the debt, it's leveraged, but it's worthwhile.
Until you discover that they are getting less for the rifles
than it even costs them to make the rifles.
And so once they have about 11,000 rifles delivered this all kind of comes to a head.
They are put into receivership, they have in fact gone bankrupt
manufacturing guns during the biggest war in world history.
And they did it by over-leveraging their company, getting into a lot of debt to build new facilities,
and then not properly evaluating the contract.
Not ... having any down payment that can help them cover the initial costs,
or get things going faster, make production more efficient.
And they do in fact go bankrupt.
Now bankrupt doesn't ... mean that ... they fire everyone, they close the doors and it's over.
This is still a company with really substantial assets.
They have in fact a whole rifle production line, they just
need better financial arrangements to actually make effective use of it.
And so what ends up happening is they are purchased by the Marlin-Rockwell Company.
This is another firearms manufacturer, they are also building stuff.
And Marlin-Rockwell has some contracts up its sleeve
for things like Browning Automatic Rifles and 1917 machine guns for the US government.
And they essentially purchase Hopkins & Allen for like basically nothing
in exchange for taking on its debts.
And they are in fact able to turn the company into a profitable enterprise.
They were able to finish the Belgian contract, and then the factories are converted to other uses.
So Hopkins & Allen as ... a financial entity, yeah, it goes bankrupt and goes away.
But the physical assets of the company don't,
and they go on ... successfully making guns for the rest of World War One.
So, hopefully you guys found that interesting, I think it's a really neat story
that, yeah, you can in fact be so dumb.
And part of this, it's not so much everyone was dumb,
some of the people were clearly malicious
and just trying to find a way to skim money off of ... one government's need for firearms,
and another country's need for manufacturing contracts.
There was some clear sleaziness going on here that started off the whole deal.
But then Hopkins & Allen wasn't able to ... properly evaluate the contract,
they got greedy, they got "uncareful", and found themselves in bankruptcy.
So if you enjoyed this, I again recommend Luke Mercaldo's book,
It covers these, it covers the Berthier production from Remington,
or the attempted Berthier production from Remington for the French government.
As well as P14s for the British,
Mosins, Winchester 1895s for the Russians, all that cool stuff.
Savages, by the way, for the Canadians as well. Anyway, hopefully you enjoyed it.
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Thanks for watching.