Q: When did Spanish guns begin to get a bad reputation?
A: 1914
Q: Why?
A: Long story. The short version is this.
There is no Spanish gun industry, as we here in the States use the word 'industry'. Rather each gun maker is a small shop (generally fewer than ten employees), and produce fewer than 100 guns a month. All guns are handmade. There is little or no mechanization. Each maker buys the parts he needs to assemble a firearm from a network of artisans, each of which specializes in a specific part or small assembly.
The Great War broke out in 1914. France, Germany, England, and Russia expected a short, victorious war, and to be 'home before the leaves turn'. We now know just how wrong they were, but it came as a surprise to the warring parties. England, France, and Germany all turned to Spain as a source for sidearms. Small companies like Beistegui, Echave, and Unceta, all of which produced fewer than a hundred handguns a month, were called on to deliver five to ten thousand firearms a month.
It was a disaster. The producers of small parts, like hammers, who traditionally might turn out five hammers a day, were pressed to deliver fifty hammers a day. Old men, children, and widows who had never made a firearms part in their lives began making gun parts. They had no experience, just a sample to work from. Some had good materials and some didn't. Some knew what heat treatment was, and some didn't.
Lots and lots of handguns were delivered. All of them worked a few times. Some of them were quite well made. Most weren't. And that's where the legend of 'soft Spanish steel' comes from. It's also from whence we get the 'Ruby' pistol collecting specialty. 'Ruby' was a very common model name for pistols delivered to the warring parties, and they were notorious for mechanical problems. People who collect WWI Spanish handguns are frequently referred to as 'Ruby Collectors'.
This is the origin of the distaste for Spanish firearms generally.
The story on Spanish shotguns is similar. Some hardware chain in the US finds a small Spanish shotgun maker and orders fifty shotguns a month for six months. The Spanish gun maker was capable of making ten guns a month. See above.
With shotguns, there is an added wrinkle. Here in the US we are accustomed to shotguns designed to do everything, including upland bird, water fowl, turkey, deer, and bear. Spanish shotguns aren't built that way. Spanish shotguns are like golf clubs; each gun is made for a specific purpose. Light game guns (a 12 gauge at six and a half pounds) is intended for light use in upland bird hunting. It's made to be carried a lot, fired a little, and used with one to one and an eighth ounce lead shot charge at 1200 fps. Shoot that gun with one and a half ounces at 1500 fps loads, the gun doesn't last long, and the ignorant owner complains of 'bad Spanish guns'. Next time you go out for a round of golf, try teeing off with a putter. It's just amazing how poorly putters are made :-)