Ronnie wrote this nearly a month ago, but I was lazy and didn’t get it posted. With the recent Gibson bankruptcy speculation in the news, this piece now looks reactive rather than predictive — that’s on me, not Ronnie — JB
Did you know that Studebaker still existed as of just a few years ago? Yes, they stopped building cars in 1966 but in 2009, the Indiana Supreme Court ruled that Cooper Industries was the legitimate corporate heir of the Studebaker Corporation and thus responsible for the environmental cleanup of Studebaker factory sites in South Bend. Cooper Industries makes electrical components like circuit breakers and has since been acquired by Eaton. That’s just the latest in a series of deals that started when the Studebaker corporation, no longer making cars, merged with Wagner Electric and the Worthington Corp. to form Studebaker-Worthington in 1967. McGraw-Edison bought Studebaker-Worthington in 1979 (except for Studebaker-Worthington Leasing, which still apparently exists, providing financing for industrial equipment) and Cooper Industries bought McGraw-Edison in 1985.
Starting in the early 1950s, Studebaker’s position as an automaker became increasingly precarious. Though they had one of the earliest genuine postwar car designs in 1947, they really didn’t have the financial resources to go toe to toe with the big three Detroit automakers, particularly as GM, Ford, and Chrysler introduced modern, high compression V8 engines. What should have happened was a merger of the major independents, as was proposed by George Mason, who ran Nash (and merged it with Hudson to form American Motors), and wanted to merge with Packard, Studebaker and Kaiser Frazer, which had bought Willys. James Nance, who ran Packard, wasn’t willing to give up any power so a fourth major U.S. automaker never came to be. Eventually, though, Packard’s worsening financials forced them to merge with Studebaker, not realizing that Studebaker’s automotive operations were probably in even worse shape.
The Studebaker corporation was able to get out of the car business because it’s board of directors saw the handwriting on the wall and had started diversifying in the late 1950s. By the time they shut down the South Bend operations in late 1963 (to keep from violating contracts with dealers they kept building a few cars in Hamilton, Ontario into 1966), the Studebaker Corporation was a conglomerate, and owned a number of profitable subsidiaries:
* Clarke – Floor Machine Division
* CTL – Missile/Space Technology Division
* Franklin – Appliance Division, manufactured private label kitchen and laundry appliances for major retailers.
* Gravely Tractor – Tractors Division
* Onan – Engine/Generator Division
* Paxton Automotive – automobile superchargers
* STP – Scientifically Treated Products Division, automotive engine additives.
* Schaefer – Commercial Refrigeration Division.
* Studegrip – Tire Stud Division
* Trans International Airlines
Studebaker walked away from the car biz because they could afford to. This post isn’t about cars, though, it’s about guitars. The big annual NAMM show just wrapped up in Anaheim. It’s where the music instrument industry gathers to show off the latest in guitars, amps, pedals, saxophones, etc. This year the Gibson guitar company was notable by its absence. Instead, Gibson decided to show their 2018 line of guitars and related equipment at the Consumer Electronics Show in Las Vegas.
You see, today Gibson makes more than just guitars. The company is heavily invested in consumer electronics. Gibson owns the TEAC corporation which produces the TEAC and Esoteric audio brans, the Onkyo Corp which owns the Onkyo and Pioneer brands, Cerwin Vega (speakers), Stanton (headphones and phono cartridges), KRK Systems (professional audio and PA, and Baldwin Piano. Gibson also sells consumer electronics under a license to use the Philips brand. Gibson had owned the Cakewalk music software firm, but they recently shuttered it.
Gibson’s decision to skip NAMM came on the heels of the company recently putting its Memphis factory up for sale, saying it didn’t need that much space. That factory produces the ES series of semi-hollowbody, which the company says will be made at a smaller facility in Memphis once the existing plant is sold.
That’s not the only bad news Gibson has been facing.
Gibson also has a July 2018 deadline to either pay off or refinance about a half billion dollars worth of debt. Part of Gibson’s financial woes are tied to those of its biggest customer, Guitar Center, itself billions in debt. Supposedly, Gibson and Fender (which has it’s own financial concerns) are carrying the cost of Guitar Center’s inventory of their products.
My guitar aficionado friends tell me that the production Gibsons (as apart from the custom shop instruments) were never the best made guitars, but the company’s quality control reputation has taken a hit. That reputation worsened when Gibson’s online catalog last year featured obviously damaged guitars.
The Gibson company has also been criticized for losing touch with both their customer base and their stable of endorsing arttists.
In 2015 Gibson decided to make their G-Force auto tuner, which mounts to the back of the headstock and can tune a guitar by itself (as well as make alternate tunings easier), standard equipment on their guitars. That move alienated many Gibson fans who love the brand because of its heritage.
Last year Gibson introduced a line of day-glo colored Les Pauls that featured Floyd Rose tremolos instead of the classic Gibson stop tailpiece and Tune A Matic bridge. For a company whose iconic product was designed in the 1950s, that’s a radical step, and maybe a decade or two late to try to make the LP appeal to dive-bombing shredders.
Their entry level U.S. made Zero line, guitars that cost about $400, which should have been a bargain for American-made set neck guitars, were widely panned.
The question I have is, does skipping NAMM in favor of the CES portend Gibson pulling a Studebaker? Could Gibson just walk away from the guitar business? Well, the difference between Gibson and Studebaker is that Studebaker was a successful conglomerate, its subsidiaries were profitable so the board of directors could decided to abandon the car and truck business.
You might say, “Gibson isn’t getting out of the guitar business. The Gibson brand means guitars.” Actually the company hasn’t been called Gibson Guitar Corp. since 2013, when it was, ahem, rebranded as Gibson Brands Inc.
Studebaker’s subsidiaries, besides the car-making operations, were profitable. Gibson is privately held by CEO Henry Juszkiewicz and its president David H. Berryman so it’s hard to say if their other businesses are making money but it seems to me that Gibson’s consumer electronics brands were famous generations ago and mean relatively little to today’s consumers. How many folks are looking for a TEAC tape deck or an Onkyo stereo receiver?
Instead of trying to revive moribund brands, I’m surprised that they aren’t trying to capitalize on the value that the Gibson brand itself may have outside of guitars. Gibson could follow Fender’s example in their deal with Volkwagen and Panasonic.
For the 2007 model year, VW (or more likely their U.S. ad agency) cooked up a promotion wherein you got a free VW branded electric guitar if you bought a new Volkswagen. They got First Act, then engaged in their effort to be considered makers of real guitars, not just Toys R Us level instruments, to make what was billed as the Garage Master electric guitar, complete with an onboard preamp that let you play through a car stereo system, all sorts of VW logos, and even a metal plate engraved with the car’s VIN. Slash, John Mayer and Christopher Guest (as Nigel Tufnel) were hired to do the commercials.
I guess someone at VW must have liked the idea of associated cars with guitars because in 2010 the automaker announced that two names associated with music technology, Fender and Panasonic, were working together to develop and produce premium audio systems for Volkswagen vehicles. In all likelihood, that means they’re slapping Fender logos on dashboard units designed and made by Panasonic, with minimal input from Fender. Fender probably has about as much to do with making VW stereos as Dr. Dre has to do with the car stereos featuring the “Beats” logo.
Then, and now, I’ve thought it to be a supreme example of cynically assuming consumers are idiots. Yes, Leo Fender was proud of how clean his amps sounded, but even at their cleanest they have significantly more distortion than you’d find in a hi-fi amplifier, and you could make a persuasive argument that the unique distortion of a Fender Stratocaster’s single coil pickup run through a Fender amp turned up past 4, when the output tubes start to harmonically distort, is one of the foundational sounds of rock and roll.
The cynic in me can see Gibson licensing the brand name, like Fender has, but that’s a relatively minor change. A bigger change would be Gibson withdrawing from the mass market, using its Epiphone brand on anything that doesn’t come out of its custom shop. Selling $400 Gibsons isn’t going to make them any money and only cheapens the brand. When there are YouTube videos asking if one of the higher end Asian-made Epiphone Les Pauls is a better guitar and deal than a pedestrian U.S. made Gibson LP, what’s the point of selling mid-priced “Gibsons”? Why not just make Gibson a premium only brand and use Epiphone to cover the mass market. Make Les Pauls as aspirational as they once were.