Guest Post: Will Gibson Go The Way Of Studebaker?

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.

22 Replies to “Guest Post: Will Gibson Go The Way Of Studebaker?”

  1. JustPassinThru

    While I’m not a musician, corporate histories and shenanigans, fascinate me. I’ve read any number of business histories and autopsies, everything from United Fruit to Texas Air to Ford Motor.

    Businesses change. What was quality back in the day, becomes crap now. What was crap at one time, is now the gold standard of value.

    You compared to Studebaker. Interesting backstory there is that one of the components of the car-less Studebaker-Worthington, was that Gravely Tractors, Incorporated, was itself trying to be the standard against which other garden-tractors were measured. Benjamin Franklin Gravely, a photographer by trade, saw a need for high-quality powered garden implements…and unlike International Harvester, which shrunk the Farmall into the Cub…he started with a clean sheet.

    And after his first Smokey-Stover one-wheel mess, he succeeded. His little company was closely held, his family and his partner’s, and remained there until his death and his partner’s retirement.

    Studebaker-Packard, flush with Lark cash, went on a buying spree, and bought the outfit. And that was the end of, first, Gravely’s corporate integrity (union-busting almost immediately, and a poorly-planned move to North Carolina) and then product development (the Gravely Model L was morphed into the Model C, with a Kohler high-revving, low-torque engine – changing the nature of the tractor)

    Finally, as Studebaker-Worthington was dismembered, Gravely was sold to Ariens and now is just a brand of commercial-oriented grass-cutters.

    Studebaker itself, did the same, writ large. From their role in WWII as THE maker of medium Army trucks, so ubiquitous that the Soviets later reverse-engineered them…it became just a diversified holding company, a sitting duck for a corporate raider.

    Now, Gibson. I don’t play, but I understand history and quality and tradition. More, it seems, than the corporate suits.

    But trends respect no man. And with electronic computer-generated music, I expect, the men and women of raw talent, who understand the differences between “a guitar” and a Gibson…are fewer and fewer.

    Oh, lordy, how I know it. As a motorcyclist, I see the same trend in young people – far-fewer interested in riding; and the sales are reflecting it.

    So, it would appear, that to survive, Gibson will lose its focus; aim at where it thinks the markets are going…and eventually will lose its reason and its will to exist and be taken over or dismantled.

    Such is life. Such are human dynamics.

    Reply
    • stingray65

      I was thinking the same thing. Baby boomers were behind the growth of electric guitars (and rock music), motorcycles (in the 1960s-70s, and as empty nesters in the 90s forward), muscle cars (as new cars in the 60s and early 70s and classics in the 2000s), McMansions, killer stereo systems, etc. but are now getting to their downsizing years. As a result, sales of lots of these “baby boomer” products are in free-fall. Harley is shutting down plants, and I can’t remember the last time I saw anyone on a “starter” motorcycle. Sports and sporty car sales are in the doldrums, and do any young people in the age of music piracy and pittance royalties dream of learning to play a guitar like ringing a bell and becoming a big rock star? How many youngish music stars of today know how to play a musical instrument? I know many have big student loan debt, but do millennials or iGen people care about anything besides playing with their mobile phones and listening to music on anything besides earbuds? For the first time in history we seem to be going backwards with regards to music and video – as MP3 files do not have the sound quality of CDs, and people increasingly watch video content on tiny phone screens. They also don’t care about getting drivers licenses or owning cars – why not just Uber. The times they are a changin, but its going to be (or already is) painful for a lot of industries.

      Reply
  2. Dirty Dingus McGee

    Be mighty sad if Gibson guitars goes away. I have hung on to my 58 LP Custom for almost 42 years now, but perhaps now is the time to let it go (not playing it doesn’t help it). I did however join the Studebaker crew about 18 months ago, with the purchase of a 1960 Lark. In 59 when it was introduced, sales were off the chart for Studebaker as it was the first new “compact” (which is ironic as its bigger than what is now called mid-size) offered. Sales took a hit in 60 tho, due to the big 3 offering their compacts (Valiant, Corvair, Falcon) and the writing was on the wall then. The last gasp was the Avanti, but it was far to late to save Studebaker by then.

    Hopefully, this isn’t Gibsons last gasp.

    Reply
    • stingray65

      The difference is anyone can wear sunglasses, but only a very few today seem to have the patience to learn how to play a musical instrument and stick with it.

      Reply
      • -Nate

        It has been my experience that those who can actually play music, do so fairly easily .

        Others (me for one) struggle with it and give up, either you have the talent or not, I don’t .

        Everyone brings some thing to the table .

        -Nate

        Reply
    • Ronnie Schreiber

      I’m politically sympathetic to that viewpoint and think that the raid on Gibson was just another way that Obama & his minions weaponized the federal bureaucracy against their politic opponents, but Henry is the one primarily responsible for Gibson’s situation. I do think the Government series guitars they made afterwards look kinda cool.

      Reply
      • Jack BaruthJack Baruth

        I have it on semi-authoritative opinion that Gibson was 100% in the wrong on that and that Henry himself gave the order to buy that wood despite knowing the paperwork was bogus.

        Reply
        • Ronnie Schreiber

          Import and export restrictions are nothing to mess with. I recently read of people having difficulty shipping vintage vacuum tubes to Europe. It may violate some EU regs to ship any vintage electronic equipment there because of the lead in the solder.

          There’s a harp player in England who is interested in a Harmonicaster. Just in case it matters to some bureaucrat across the Atlantic or in California, I bought a soldering station (Pace, made in USA) capable of working with unleaded solder so I can make them RoHS compliant.

          Reply
        • CJinSD

          I get it that you know your source while you don’t know me from Vogo, but that’s so convenient that I’d have to vet it myself. I’d also have to learn whether or not anyone else has had their institution of an employer destroyed for similarly trivial transgressions.

          My current venture is pursuing a special use permit in a left wing dystopia. The owner’s wife was a county employee when this started, and he’s friends with most of the local bureaucrats. It’s been said that any ethical members of the local cabal would recuse themselves because they’re all our friends and customers. Since this started, my friend’s wife has been granted early retirement even though she quit working for the county even earlier than is permitted under the law. She quit because even though she’s a self-proclaimed Marxist, she’s frustrated by how anti-business the @L&****** county board of economic development has turned out to be. As a tax payer, I don’t find her lifetime benefits for brief service heart-warming.

          Anyway, we’re about $7K and six months into the permit process. Our special use permit should net us that much every few years. We’ve been targeted by a county-paid POS who drove by our facility on a weekend and saw a neighboring business’s customer parked in a non-designated part of our lot. He had us fined a few hundred dollars and ordered us to make most of our parking lot “no parking,” while painting diagonal stripes across the designated access lanes of the lot. Are such stripes a convention anywhere other than this Democrat-Nazi’s mind? It might not matter. I’m mostly entertained, having a fun conversation topic for all of our big government loving, NPR-listening clients. The funny thing is that nobody is better positioned to navigate the crony-communist, one-party local government than we are. These vile stains on humanity are our friends, and they’re shocked that what they do might adversely impact people they depend on. There’s nothing socially acceptable to say about them.

          Reply
  3. John C.

    Wonder if owning all these has been brands is a signal that they desire a takeout offer from private equity. The acquirer could sell off one by one all of these underutilized brands getting their money back before the pig payoff of crapping out even more Gibson itself.

    Reply
  4. DougD

    Yup, they should scale back and just make the high end stuff. They can’t compete with the Chibsons coming out of China (both the off brand and fakey-doo Gibson ripoffs) and the used market, so just do what makes money.

    Studebaker was smart to exit the business when they did, the coming safety and emissions regulations would have killed them.

    I’d probably rather buy a new Gibson than a used one because there are so many fakes out there. But actually I’d rather have a used Ibanez AF71… Hmm gotta go check CL now.

    Reply
  5. john marks

    A couple of pieces of US brand trivia, from an Ivy League history major:

    When Abraham Lincoln made his last trip to Ford’s Theater… he arrived in a Studebaker carriage.

    And, he was wearing a frock coat by Brooks Brothers.

    Ciao,

    jm

    Reply
    • Ronnie Schreiber

      That carriage is on display at the Studebaker museum in South Bend. The Henry Ford Museum has a number of presidential vehicles, including Teddy Roosevelt’s brougham, which doesn’t look anything like a 1970s era brougham and ran on only one horsepower.

      Reply
  6. Don Curton

    I see a slightly similar comparison to the firearms industry, Colt in particular. In both cases (Gibson and Colt), fans are way more interested in products made many decades ago than what is in the showroom today. And when you’re dealing with products that essentially never wear out, you find that your primary competition is yourself from 50 years ago. Hard to deal with that, as Colt’s 2015 bankruptcy shows (that wasn’t their only problem, but it was a problem).

    On many firearm blogs, people opine that Colt’s best option was to simply reduce size and become a boutique heritage manufacturer. They could crank out SAA’s, Pythons, and custom 1911’s all day long and collectors would shell out top dollar for them. Similar to the suggestions that Gibson go into the high end heritage market suggested above.

    At the end of the day, however, the name will still have value even when there is no longer a business case for it’s existence. Maybe someone will buy the name and make a line of over-priced watches? That seems to be popular for some reason.

    Reply
    • Ronnie Schreiber

      You’re spot on about competing with vintage goods. George Gruhn points out that electric guitars have a very long service life. People are still playing guitars made 50 and 60 years ago. Not only are the guitars newly introduced at NAMM last month competing with each other, they’re competing with a huge base of millions of used guitars. Also, the quality of cheap guitars has improved to the point where you can get a playable instrument for $200 or less, something that won’t discourage a kid from learning how to play.

      It’s a great time to be a young musician, less so to be in the mass market guitar biz.

      Reply
  7. George Denzinger (geozinger)

    I was a drummer (in another lifetime) and I wonder if Gibson would take a hint from Ludwig Drum Company (another old name). They sold out to a company in an allied field (Conn-Selmer, they make a number of different kinds of instruments) and sell a foreign made budget and mid-priced line, but the premium line is still made in the US.

    They’ve made their budget lines all over the world, in fact my 10 year-old kit looks an awful lot like some of the DIY drum kits I’ve seen on Chinese websites. However, it seems to deliver that particular Ludwig sound that I paid the extra money for. So, I’m a happy camper.

    I don’t know if the dynamics are the same between the two kinds of instruments, but it’s a possibility.

    Reply

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