Unmaking A Gunmaker

Donald Zilkha never really planned to get into the gun business. In 1993 he turned 42, and had yet to make his own fortune. Success was expected of him: his family built one of the biggest banking empires in the Middle East before conquering New York. He worried aloud to friends that his father, a philanthropist and banker, disapproved of him. Zilkha was looking for a chance to prove himself, and suddenly there it was. Colt's Manufacturing Co.--known to the world as Colt--had fallen on hard times and could be bought for next to nothing.

His family, Zilkha told others, was appalled. His mother, a board member at the Metropolitan Opera, thought it a dirty business. His billionaire uncle refused to help. But Zilkha defied them. He was a city kid enthralled by cowboy legends. He was also a shrewd businessman, and he thought he'd found a way to make the guns profitable and "respectable." Colt had helped America win two world wars; it wasn't like owning some cheap handgun maker. Zilkha would buy up Colt's competitors for military weapons, Wall Street style. Later there were other ideas: "smart guns" that would make the world safer, Western theme parks for kids. He just might become a modern Samuel Colt.

Now here he was, in the summer of 1999, sitting in his office 46 floors above midtown Manhattan, listening on the speaker phone as Colt executives told him the dream was dying. Colt was deep in debt and paying more than $300,000 a month in legal fees. The bank wouldn't loan him any more cash. With school shootings dominating the news, Zilkha's private investors wanted nothing more to do with guns. And if he didn't come up with $4 million in a hurry, the nation's oldest gunmaker would be forced to close its doors. So Zilkha did what he had to do. He and his partner, John Rigas, secretly put up $1 million of their own money so that Colt could hastily build 1,100 modified assault rifles for the civilian market. They knew those guns were in high demand--even though they're banned in several states. The rifles gave Colt a cash infusion so it could pay its factory workers. But it wasn't enough; the money ran out, and Colt soon announced it would have to stop making most consumer handguns.

The fall of Colt--"the gun that won the West"--reflects a shift in the way Americans think about guns. Once the symbol of heroic lawmen and soldiers in battle, guns are now the target of growing public anger. Colt's journey from frontier legend to the brink of extinction is part of a larger story of gunmakers that turned away from hunting rifles and military weapons in favor of handguns that, in the public's view, too often fall into criminal hands.

Little is known about the inner world of the gun industry. But exclusive NEWSWEEK interviews with Colt's owner and former and current executives tell the inside story of an industry in trouble--and the desperate measures gunmakers will take to save themselves. Lawsuits from the cities are draining the companies' cash. Politicians are pushing for new laws. Pro-gun crusaders are threatening to punish any company that looks for compromise. Some gunmakers vow to fight on; Smith & Wesson opted for a deal with the Feds to change its ways. Colt tried everything to save itself--and ended up nearly broke.

Zilkha and the outsiders he brought to Colt thought they could teach other gunmakers a thing or two about modern business. But they knew nothing about the people who buy guns, or the people who hate them. They wanted to build safer guns but found themselves buried under lawsuits. They tried negotiating with their enemies, only to infuriate their customers. And while they were able to make the kind of handguns that sell on the street, they feared the image it conveyed. The well-meaning men who ran Colt missed a hard truth of the trade: gunmakers don't push the latest in pocket pistols and assault rifles because they think everyone should have one. They do it to survive.

Only a trickle of guns--military rifles and engraved collectibles--now flows from the troubled Colt plant in West Hartford, Conn. But Colt was once so vibrant that the old plant and its grounds were known as Coltsville, a town unto itself. Sam Colt invented his revolver in the 1830s; by the end of World War II his pistol was in the holster of every American soldier and most cops, too. During the Vietnam War, the company churned out as many as 50,000 M-16s a month.

But then, in the 1970s, revolvers gave way to semiautomatic pistols. As gun sales sagged in an increasingly urban country, gunmakers came to rely on the only market with any growth: small and powerful self-defense handguns, many of which ended up on the street. Beginning in 1968, gun-control advocates fought several fierce battles with the gun lobby in an effort to curb handguns. But the gun companies themselves were never targeted; the public seemed not to notice them. Colt, meanwhile, had missed the modern trend entirely. Its outdated handguns weren't cool or affordable, and by 1993--after a prolonged labor strike--the company was bankrupt.

That's when Donald Zilkha stepped into the gun world, wearing pin-striped suits and polished leather shoes. To run the company he hired Ron Stewart, a former Chrysler executive. Stewart knew even less about guns than Zilkha, but he saw why handguns were the lifeblood of the industry. He could make a concealable Mustang pistol cheap and sell it for 40 percent more, and it would be a sure source of monthly cash. At the plant one day in 1996, Stewart was introduced to Joe Cartabona, an ex-cop who owned a small gun shop. Stewart asked Cartabona if he stocked Colts in his store, and he said no. Why? "Because they suck," Cartabona replied. To test that theory, he and Stewart took down a pile of assembled handguns and test-fired 20 of them. Eleven misfired. Stewart hired Cartabona and charged him with revamping the handgun line.

Cartabona had been buying and shooting handguns his entire life. As a high-school football star, he had been enlisted by school janitors to bring in his .22-caliber pistol and shoot the rats in the boiler room. Cartabona and the Colt engineers produced nine light, inexpensive handguns, including a 9mm pocket pistol made to compete head-on with Smith & Wesson and Glock. He even developed his own testing process: he and his friends would take each new model behind his shop, firing into a sack of calf livers at close range to test the gun's reaction to "blowback" of blood and tissue. By 1998, as the political furor over guns was getting louder, Cartabona and a Texas-based company were developing a survivalist gun called the Multi-Caliber, which would appeal to Y2K worriers because it could fire any caliber of bullet. "I envisioned marketing that gun with gas masks and beef jerky," Cartabona says.

In his trademark black uniform with the Colt insignia, Cartabona may seem like the perfect villain for a dark industry. But in fact, like most gun executives, he is more complicated than that. He is being earnest when he says that he refused to advertise his guns alongside tobacco ads. "The last thing I want little Johnny to do is pick this up, see a Colt ad, then flip to the back and see this cigarette ad," he says, grasping a magazine. Genial and frank, Cartabona says he would never sell junk guns, and he favors licensing and registration. He has used some gun profits to buy paint for the high school. The guns he was making at Colt, he says, "are designed to get you home at night, which is your God-given right." Does Cartabona feel any responsibility for gun violence? "Not one iota."

The meaner, cheaper Colt handguns hadn't been part of Zilkha's grand plan. He says he approved them because they were designed just for cops. In fact, Colt was aggressively marketing them to the buying public. But Zilkha had little choice; by 1998 he had won back military contracts for Colt, but his bid to buy a major competitor had fallen apart, and in the wake of school shootings, mayors were starting to talk about suing the gun industry--a new tactic that would be devastating to a declining industry. Money was tight, and the new handguns were Colt's only promising new line.

Selling handguns takes a certain mentality. Manufacturers live by a general rule: you don't have to be a "gun nut," but it doesn't hurt to pretend. As outsiders to the industry, Zilkha and Stewart didn't get it. First Stewart, sensing that the gunmakers were headed for the same kind of regulation as car companies, wrote an article saying the industry would be wise to accept some kind of registration. Gun owners revolted, turning up evidence that Zilkha had contributed money to the New York Senate campaign of gun foe Charles Schumer. The resulting grass-roots boycott cost Colt as much as $10 million.

The bad publicity and the darkening political climate worried Colt's board members, none of whom had any experience in the gun trade. They lived in the real world, not Charlton Heston's, and the public's growing outrage over handguns made them uncomfortable. Defending themselves against public lawsuits wasn't what board members had in mind when they agreed to serve. They made their arguments to Zilkha in business terms, saying the modest profits from his sleek new handguns weren't worth the potential liability, but in some cases their feelings were plainly more visceral. "The guy, in my opinion, who was buying that gun was buying it for the wrong reason," says Bill Keys, a retired Marine general who sat on the board and now runs the company. "I don't want to make a gun where some guy shoots some guy, and the ATF comes back here asking questions." As for its intended use for self-defense, Keys says with military disdain, "The pocket gun is a ladies' gun."

Zilkha's partner, Rigas, told other board members that handguns were a dead-end business. With Stewart preparing to leave in 1998, Rigas stepped in and hired a new CEO: Steven Sliwa, a former NASA rocket scientist and college president who barely knew a gun from a grenade. The idea was for Sliwa to hurry along the "smart gun," a high-tech weapon that could be fired only by its owner. The National Rifle Association had at first warned Colt away from the idea, but now it had softened its stance. Sliwa says that as a businessman he was determined not to let his political views on guns affect the bottom line, but employees had little doubt about where he stood. Sliwa's wife cried when he took the job, but he said of the smart gun: "If somebody doesn't get in there and do this, who will?"

Sliwa's style, a mix of academia and New Age, seemed almost comical in a gun factory. His first move was to send his executives to a New York shrink he called "Uncle Morty," for $8,000 a pop. The psychiatrist asked them, among other things, what their religious views were and how they got along with their in-laws. Sliwa gave Cartabona a new title: "Colt Fellow." No one knew what that meant. One executive's wife teased him about the new corporate culture, saying he had to go to the gun plant and "feel the love." Some managers thought Sliwa seemed afraid to handle the guns they put in his hand.

Sliwa arrived with a host of ideas for selling Colt's image: videogames, theme restaurants, kids' books. He traveled to Las Vegas to meet with developers about a Colt casino and kiddie ranch. In the gun business, no one introduces a product that may not sell instantly, because the cash flow is too precarious; Sliwa planned to roll out a new innovation every quarter. He was obsessed with the smart gun. In his desperation to find the right parts, he spent weeks in South Africa unsuccessfully negotiating to buy Vector--a gunmaker that was selling guns to outlaw nations like Libya.

Unknown to the rest of the industry, Stewart and other Colt officials had been meeting secretly with anti-gun activists to develop a strategy for introducing the smart gun. Sliwa continued the process and went a step further, appearing at an anti-gun conference. He was so concerned about Colt's image that on the day of the Columbine High School shootings last April, he wanted to make some gesture to the families. His New York media consultant talked him out of it, saying it would seem empty.

While Sliwa was busy being a "change agent," Colt was sinking. Growing legal bills and a delay on a foreign rifle deal had the company in a bind. Zilkha had managed to buy a smaller competitor, taking on additional debt. But if the pocket guns could help pay the bills, Sliwa wasn't interested. They weren't the future. He would phase them out, along with the profitable assault-style rifles, leaving only the socially acceptable, high-priced collectible guns. Cartabona's new 9mm pistol and his Y2K gun had locked up more than 12,000 orders at the industry's annual Shot Show, but neither would ever come to market. There were no parts.

Sliwa had even more worries. By summer it was obvious that employees had been lying about the inventory of completed rifles in order to mislead the bank and keep the loans flowing in. Sliwa had evidence that employees were stealing guns and products from the plant. On the verge of losing his beloved smart gun to bankruptcy, Sliwa agreed to leave his job and spin off a separate company that would raise money for the project. Nobody wanted to invest.

On an unseasonably warm day in December, just before Christmas, everyone responsible for selling new handguns arrived at the plant to find he had been furloughed without pay. Joe Cartabona left Colt with his Pony Pocket Lite pistol still in his front pocket, among the last the company would ever make. The people who ran Colt had used up their time and money looking for another way to survive--something that wouldn't make them social pariahs. "I just don't think there was an affinity with the final customer," a board member says. "I don't believe we were the kind of ownership or board that was capable of running a gun company."

Donald Zilkha is still trying. He's now negotiating to buy yet another foreign competitor. His family wishes he would dump Colt once and for all, but with the industry in crisis he doesn't have that option. "I'd love to," Zilkha says. "But the fact is, who wants to buy a piece of cancer?" He is eating french toast at Manhattan's Four Seasons Hotel, reflecting on what went wrong. He blames the lawsuits for Colt's demise. He expects that sooner or later the American gun industry will be reduced to nothing.

Do he and other gunmakers bear any of the blame for gun violence? "People don't take responsibility for things anymore," Zilkha says in frustration. Then he relates a painful story from when he was 8 years old. He and some friends were at a birthday party, playing like swashbucklers with kitchen knives, when one kid stabbed another in the liver and accidentally killed him. The problem, he explains, was with the kids, not the knife. "It is tragic. It is a great lesson, in a sense. One has to have a certain amount of discipline. One needs to take responsibility." It is an argument he makes a lot these days. Donald Zilkha is all grown up now, and being a cowboy isn't nearly what it seemed.

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