01.14.14

The Plutocrat’s Stratocaster

Posted in Culture of Lickspittle, Made in China, Rock 'n' Roll at 5:16 pm by George Smith

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Now for plutocrats and their not-yet-obsolete shoe-shiners.

From the middle class to the upper class in a little over half a century. The de-evolution of the domestically-made electric guitar from a working class instrument to a snob buy primarily for the plutocrats, their immediate servant class and rock stars mirrors much in the calamity that is American inequality. Fender Musical Instruments didn’t cause it but the state of the company and its legendary products does show the systemic problem caused by the Great Recession and the crushing of the middle class.

The buying power of the American middle class took a big hit in 2007 and has never really recovered. Electric guitars and amplifiers are not an essential good. While American companies like Fender now employ the same manufacturing model as the iPhone — design in the United States and outsourcing of production to China or any other comparable low wage or slave labor country — guitars are not smartphones. They are not nearly as essential to young people, not even remotely as “must have.”

Leo Fender’s company was dependent on a healthy middle class as well as a lower class that could aspire to greater things in an economy where the majority could have employment at decent pay. That economy no longer exists.

Like everyone else, Fender followed the track of corporate American manufacturing. And it would be a little unfair, but only a little, to whack it for not realizing where that story could wind up.

Today Fender’s Mexico plant in Ensenada employs around 1,000. It’s Corona plant, here in southern California, approximately 600, according to various reports. Of these, fifty are employed in its Custom Shop, making ridiculously-priced snob pieces for famous musicians and the wealthy.

China now makes 70 percent of the world’s electric guitars, an American innovation. And Fender, like Apple, uses the model of employing an outside contractor in Asia to supervise and implement manufacturing of its low cost Squier line of relatively inexpensive lesser parts and cheap-manufacturing copies. It’s a business in which the guitar-making has disappeared into a warren of low cost Chinese or Indonesian industrial plants, manufacturing operations that house cheap production of multiple brands of electric guitars all under one roof, for whatever is needed.

However, even these instruments are not cheap enough anymore for the working class. And when your business was built upon the buying power of a healthy middle class, that means you have a long term, perhaps permanent, problem.

In 2012, Fender Musical Instruments attempted to go public. It then withdrew the plans for its IPO when the tea leaves were read and it was determined the capitalist market deemed the company over-valued under much of the same ratonale discussed on this blog.

“Though Fender remains the largest guitar-maker in the world and an iconic brand name, the market for guitars hasn’t been great,” reads a piece from Fortune. “The recent recession forced many people to reconsider purchasing luxury items such as electric guitars.”

Unintentional hilarity is provided by the assessment of a financial instruments man as at a wealth investment firm (pay attention because this guy’s going to show up again):

Jeffrey Bronchick, the chief investment officer at investment advisory firm Cove Street Capital, says the stock was overvalued. “It is a much more difficult business than what it was being sold as,” says Bronchick (who also plays guitar, on a Fender). “It was highly levered, there was a big question mark on growth and it was priced too high, which makes for a fairly toxic combination.”

The 1-percenters weren’t the market for the electric guitar in the United States and the west. Now, one can certainly make a product to sell to them, but they’re not enough to sustain the traditional business that one, historically, enjoyed.

Another way of putting it is to state that Fender, domestically anyway, has changed from the equivalent of making Ford Mustangs, a “sports car” just about anyone could hope to own in the Seventies, to Teslas, cars that are only for the top end. With the exception that there have really been no design changes worth noting in 60 years.

In 2009, Michael Hiltzik, a Los Angeles Times reporter did a puff piece on his tour of the Fender Corona plant.

Excerpted, it tells the story:

So it’s no accident that Fender’s $1,590 American Standard Stratocaster, the heart of the catalog, is made in Corona. And that’s not to speak of the models produced by Fender’s eight master builders, elite craftsmen who can spend anywhere from several days to several months building a guitar in the Custom Shop …

John Cruz showed me the replica he fashioned from Swedish guitar-virtuoso Yngwie Malmsteen’s 1971 Stratocaster. It’s a heroic reproduction, down to the original’s cigarette burns and tooth marks, not to mention its strip of tape with the words “Play Loud” and electronics that achieve what Cruz called a “1-to-1 match” sonically.

Fender then turned out 100 replicas, sold for a list price of $12,500, to Malmsteen devotees — plainly a group that puts the “fan” into “fanatic” …

Many guitar experts believe Fender is today experiencing its golden age, but that doesn’t mean the firm is immune from economic woes. It cut back to one shift from two about a year ago, when the recession made $1,000-plus guitars look like dispensable luxuries. Executives say dealers have finally begun to report hazy indications of resurgent demand.

But it never really did turn around and in 2012 Fender could not go public.

It is not Apple, or Facebook, or SnapChat. And while I still think stratocaster and telecaster electric guitars are cool, the choices in “cool” things to have are now consumer electronics of the smaller, globally-networked kind.

Fender, as everyone else in the same business, could also do with average Americans having more money. But that’s not coming back soon. Instead, the current trend is much more worrying for American labor and its compensation.

A more recent story in the Sacramento Bee, another enthusiastic report on a factory tour, gets to another central point: Old guys who can still spend part of their pile, reliving their glory days.

Here:

“Being here today is like a dream come true,” said Francisco Felix, 60, of Philadelphia. “It took me 50 years to get here. I’m serious. I’m originally from Puerto Rico, and I’ve been in places where guitars are made. But it was like, wow, wouldn’t it be great to go to Fender guitars someday?”

“It’s a pilgrimage,” Fahey added. When his questioner looked at him quizzically, he elaborated: “Why am I here? Fender is huge. It’s the guitar maker. I’ve got a lot of people back home upset with me that I’m here and they’re not. It’s about coming home, seeing where the electric guitar pretty much started.”

Except it’s not. And Leo Fender, unfortunately, is long dead.

The American economic tragedy is also Fender’s. It’s everybody’s.


Any post about Fender Musical Instruments should include something about Guitar Center. These days, they share some corporate DNA.

From the New York Times, in 2012:

But this heart of rock isn’t beating quite the way it once did. Like many other American manufacturers, Fender is struggling to hold on to what it’s got in a tight economy. Sales and profits are down this year. A Strat, after all, is what economists call a consumer discretionary item — a nonessential.

More than macroeconomics, however, is at work here. Fender, based in Scottsdale, Ariz., is also being buffeted by powerful forces on Wall Street.

A private investment firm, Weston Presidio, controls nearly half of the company and has been looking for an exit. It pushed to take Fender public in March, to howls in the guitar-o-sphere that Fender was selling out. But, to Fender’s embarrassment, investors balked …


[The dilemma posed by making guitars for the plutocrat once again turns up like a bad penny in the guise of the familiar financial analyst. The rich man who has money to buy your firm’s guitars is of the class that kicked you to the curb on the IPO, ain’t it a bitch? And they don’t give a shit about inequality and what it means to companies like Fender and Guitar Center.]

“What possible niche is left unexploited by Fender?” asks Jeffrey Bronchick, founder of Cove Street Capital, an investment advisory firm in El Segundo, Calif., and the owner of some 40 guitars, including four Fenders.


Another big player on the American music scene, Guitar Center, has already had financial strains. Like Fender, Guitar Center, the world’s largest chain of instrument retailers, is also involved with private equity. It’s controlled by Bain Capital, Mitt Romney’s old firm.

Analysts say Guitar Center is crucial to Fender, accounting for roughly a sixth of Fender’s sales — and the ties between the two run deep. Fender’s chief executive, Larry Thomas, used to be the chief of Guitar Center. He sold the company to Bain at the top of the market in 2007 for $2.1 billion, including debt.

Guitar Center has been losing money since.

I shop at Guitar Center. I bought picks and strings there just before Christmas, woo-woo! I like the employees and the company gets a rum deal from many, as a big box store, for perhaps not being the more personal artisan business they would like.

Those objections are rubbish, something from libertarian annoyances, people who believes all the crap they read in a Tom Friedman column about how everyone and everything average is now over, obsolete, suitable only for the trash heap unless it can be remade as globe-spanning suppliers of custom services and goods made only for the most discerning and worthy of customers.

The Great Recession hurt Guitar Center’s business. More importantly, like Fender, the great hollowing out of the middle class has meant bad things for both. Neither company can furnish an answer alone. It’s beyond their power. They are at the mercy of the American economic system.

Corporate America, the banks and Wall Street are doing fine. But can you run big businesses that depend on mass demand and the ability to pay from a middle class that’s being whittled away more and more every year?

Can you keep your traditional business in a world where the only buyers are investment advisors who have forty guitars squirreled away in their posh digs? That’s not a particularly attractive sole customer base for mass market music equipment. (Go ahead, click that link.)

Americans have to have jobs and those jobs have to pay more. A lot more, not part-time limping-along work, not minimum wage work, not jobs in which everyone qualifies for Medicaid health insurance, food stamps or the earned income tax credit.

Guitar Center didn’t make that world but they’re certainly part of it. A lot of their employees could use more spending money.

No one expects most musicians to make much. But not being greatly alarmed by the national way of making penury more universal because corporate America believes labor costs have always nowhere to go but down is a long-term still slowly unfolding disaster for many companies just like Fender and Guitar Center.


Here is a nuanced story on Guitar Center’s economic situation.

Here is a site devoted to employees who tried to unionize some Guitar Center stores.

Excerpt:

“We work at Guitar Center stores throughout New York City, and we love music and our jobs. But since Bain Capital bought the company, our commissions have been cut, and many of us barely make more than minimum wage or receive paid sick days or vacations.”


“But the Great Recession played havoc with the business model.” — USA Today, in a piece on Guitar Center, the day after Christmas.

2 Comments

  1. Bill said,

    January 14, 2014 at 8:00 pm

    “It is not Apple, or Facebook, or SnapChat.
    And while I still think stratocaster and
    telecaster electric guitars are cool,
    the choices in “cool” things to have are
    now consumer electronics of the smaller,
    globally-networked kind.”

    In order to have a wildly successful IPO,
    the company has to produce “NOTHING of VALUE”

    Despite your accurate portrayal of the underlying
    causes of the situation you describe, Fender
    guitar still produces “SOMETHING of VALUE”
    which makes it “over-valued” in this insane market.

    And let’s give the social engineers credit. The
    last time there was an economic bust of similar
    magnitude in destruction of the middle class,
    we had the Sex Pistols and Joe Strummer and
    Mick Jones to tell their generation how things
    really were. (If you want to rob the store,
    use the computer in the office upstairs) Today,
    the most affected generation is too busy tweeting
    and texting to notice just how badly they are being
    screwed by a system which threw them under the bus a
    long time ago.

  2. George Smith said,

    January 14, 2014 at 8:38 pm

    No argument from me. Electric guitars are something of value and they’ll never go away. They’re a way of communicating something, emotion, ideas, values, you can hold them. Human DNA still answers to that. Fingers and guitars go together.