Fender

American Made Electric Guitars for around $1000

gordon

Updated January, 2016

The solid body electric guitar is a uniquely American invention, but as most people know, very few of them are made in the USA anymore. As with many consumer products, the lure of low cost labor has drawn most manufacturing offshore. The first imports in the 60’s were from Japan, and then as costs rose there, manufacturing shifted to South Korea, then China, and now there is a growing industry in Indonesia. China is still the big dog in terms of guitar production, but as Chinese manufacturing costs continue to increase, more manufacturing will likely shift to Indonesia, and after that, who knows where?  Most players would be surprised to learn that South Korea accounts for only about 5% of electric guitar production, with the USA a couple points below that.

In practical terms, the average guitar player benefits from lower prices for musical instruments and gear. Given the combination of low labor costs and improved manufacturing technology, the bang-for-the-buck on guitars has never been better. About 44% of electric guitars purchased in 2011 cost less than $200. That’s just an astounding number, and even more astounding when you figure that these products are generally something you can actually play and that will stay in tune. Fully 80% of electric guitars purchased in 2011 cost less than $600. While I can’t be certain, I’ll wager that virtually none of these guitars were manufactured in the USA.

But what if you want to purchase something made in the USA, and you are on a budget? There are several options available, and if you are willing to head north of the border, the selection expands considerably. This is not meant to be a totally comprehensive list, but just some of the options out there for guitarists that want a good quality instrument and also support American manufacturing.

G&L – Barring a special release model, the days of a $1000 street price G&L are over. With new dealer and list pricing implemented in July 2015, your not going to see a 2015 G&L at this price; short of a desperate and/or math-challenged dealer blowing them out. There are still quite a few new 2014 models out there, and a base Legacy or SC-2 still might be had for around a grand. G&L continues to offer a unique value in terms of fit, finish, and the ability to special order. If you are willing to stretch your budget, you will be well rewarded.

Godin – Godin gets an honorable mention because while they don’t manufacture complete guitars in the USA, they assemble a variety of models in their New Hampshire facility from Canadian-made parts. Godin also uses a lot of locally sourced and sustainable woods like Maple, Basswood, and Cherry for their guitars. The Session and Progression and Core lines are examples of guitars assembled in the USA, and with a street price of around $500 the Session is a particularly good value. If you consider Canada as the 51st state, the all-Canadian Godin Core is our favorite both in P-90 and Humbucker trim. These street price for around $800, and there is just nothing not to like about them. They even use Seymour Duncan P-90 and bridge Humbucker pickups. Now for a $500 North American guitar don’t expect vintage Alnico pickups, and Godin does use PCB-mounted controls rather than hand-wired pots, but the setup and playability are first rate. All Godin guitars included a gig bag in the price.

Fender – One thing is for certain about Fender, and it’s that they offer a dizzying array of products that is both extensive, confusing, and often unnecessary.  But mixed in there is an assortment of Highway One and American Special guitars that offer good values and prices right at around $1000. Models seem to come and go in the Fender line with little or no warning, so what’s available at any given moment is hard to predict. The pickups in these guitars are decent if not awe inspiring, but overall these guitars are perfectly gig-worthy instruments and great platforms for hot-rodding. Keep in mind the price of these guitars either include no case, or a gig bag.

Gibson – Like Fender, Gibson suffers somewhat from product line schizophrenia. If you are browsing the major online retailers, models tend to come and go, at least from a standpoint of what’s being promoted at the moment. Gibson offers “faded” Les Paul and SG models with prices below $1000. There are also satin finish guitars both with flat and carved tops that come in under $1000. Gibson also offers Melody Maker and Les Paul Junior models, again with satin or aged finishes. We’ve tried the Les Paul Junior, and it’s pretty nifty with lots of bite out of the single dog-ear P-90, and good playing qualities. LP Juniors are fun guitars, and for a for pure elemental rock machine you can’t really go wrong. Gibson fit and finish can sometimes be a little variable, and if you want to mod the pickups or controls, you’ll likely be dealing with a printed circuit board (even if you spend thousands). As with Fender, gig bags may not be in the price, so consider that when you are shopping.

Carvin – By eliminating the retailer and going strictly direct, Carvin has been putting out a broad variety of attractively priced USA guitars for many years. Having never played their guitars I can’t say a wh0le lot, but my personal experience with their pro-audio and bass amplifiers tells me that they do deliver above average performance at a very competitive price. Provided you don’t option them up too much, their ST300, DC127, DC134/5, DC600 and Bolt-On  series guitars can all be had for under $1000. Carvin guitars can be custom built to order, and the array of options available from Carvin is pretty mind-boggling. For under $1000, your going to be looking at a fairly basic guitar — no quilt maple tops or Koa wood — but there is still a lot to choose from. Part of the option list is the case, and essentially you have to buy some sort of case, but the case pricing is very reasonable.

Summary – There is a good feeling about buying something made in the USA, and supporting American manufacturing. After all, the solid body electric guitar was born here, so why not buy one made in the USA? In this global world, made in USA is also subject to interpretation. For many product categories there are specific regulations that control whether a product can be labeled “made in USA” or “assembled in USA” etc. There is likely some amount of foreign content in any USA guitar, most notably electronic components, and of course certain woods like rosewood just don’t exist in the USA. Also, chances of finding a gig bag not made in China is pretty tough. So made in USA can sometimes be a fuzzy term, and certain components just cannot be sourced domestically. With that in mind, you can find a guitar in which the majority of the parts and labor come from domestic sources, and not break the bank doing so.

To see some of the American made guitars carried by UpFront Guitars for around $500 – $1200: www.upfrontguitars.com

 

The Guitar Pedal Boom – Too much of a good thing?

gordon

As anyone who is even a casual player has noticed, the last few years have been truly explosive for the guitar effects market. The rise of stomp box mania has defied current economics trends — sales even grew during the recession —  and is now over a $60 million segment of the MI industry. The number of brands and selection is dizzying, and just browsing one particular online guitar website revealed that they carried over 120 brands!

Why are pedals so popular?

Well for starters, as far as guitar gear goes, pedals are cheap thrills. With the vast majority of pedals being priced under $150, it’s not a big investment to try out a pedal, and if it’s not the cat’s pajamas you can sell it to a friend, put it on the shelf, or stick it on eBay. To some degree it’s pretty hard to wear out a pedal, so a used one on eBay is typically a smart choice. I have a theory that pedals are like the proverbial Christmas Fruitcake; there is actually only one, and everybody just keeps passing the same one around.

For a budding manufacturing or mad scientist, going into the pedal business has a fairly low barrier to entry. Practically everyone uses the same die cast box — now that guy is making a killing — silk screening and painting is pretty low tech (some people even skip the paint) and the actual cost of the components are pretty low too. If you don’t mind hand soldering, there is no need for fancy assembly or wave soldering equipment. It’s also pretty easy to find schematics online, or just back engineer your favorite stomp box. Now there are obviously many serious companies out there doing lot’s of research and making significant investments in R&D and manufacturing. But for somebody who just wants to get into the business, it’s a lot easier than making guitars, amps, or speakers.

One other factor — at least to me anyway — is that if you are looking for great sounding distortion or gain, which is by far the most popular effect type, a pedal is quite often better sounding than most “gain” channels on two or three channel amps. There are many players out there with multichannel amplifiers that tend to play only the clean channel, and rely on pedals for distortion and modulation effects. Why is this so?

Well if you look back to the early amplifiers and the onset of distortion, the distortion was caused by the power tubes clipping, which turned out to sound really good; warm, sweet and very musical. A low powered amplifier with limited headroom such as a Fender Tweed would distort at a reasonable volume level. It sounded great, and everyone saved their hearing. But bands were playing ever larger venues and needed larger amplifiers, with more wattage, and more headroom. Now the amps were louder, which was good, but that warm power tube clipping was gone. Try and get a Fender Twin to distort, I dare you. Players needed volume and distortion that they could control.

But some clever engineers came of with the master volume control. This allowed the player to essentially overdrive a section of the amplifier, but control the overall volume level with the master volume. Presto! distortion at listenable levels. But the characteristic of the distortion was different. It was not warm and creamy but more harsh and fizzy. This is the because the distortion is produced by clipping the preamp tubes, and this distorted sound is then fed into the power tube section for amplification. It’s a sound, but not the sound of an amp being played at the limits of its clean headroom.

Early master volume amplifiers were often harsh and raspy, with an edgy tone that was anything but musical. Fender’s foray with master volume controls in their 70’s Silverface amps were vile, sounding somewhat like a Kazoo Orchestra playing Smoke On The Water. Obviously amplifier designers have gotten much better in producing musical overdriven sounds, typically still by using preamp distortion. The famous Mesa high gain sound is essentially multiple preamp tubes each over-driving the other to produce a thick chunky distortion tone. This is sometimes called cascading gain, and it can sound really good. If you’re a fan of metal, it’s where it’s at.

But this type of distortion is actually fairly easy to emulate using solid state components. It’s not so easy to make a pedal that really sounds like a small amp working hard on a Saturday night, but fuzz and higher gain distortion sounds can be quite convincingly created in a small metal box. It looks a hell of a lot more impressive to have a half stack, but a 1×12 or 2×12 combo with good headroom and a couple pedals can sound pretty mean.

My apologies for a highly compressed and somewhat biased view of amplifier history, but many players have found that an amplifier with a good sounding clean channel is the perfect “canvas” to paint on with the pedal of your choice. Often a well-crafted little box will sound better than an amplifier using preamp distortion to achieve high gain sounds. That’s my experience anyway, and my choice in selecting an amplifier is totally focused on finding the best natural tone possible, and using pedals to color the sound in a way that suits my musical leanings. I also happen to like a little “natural” tube grit to my tone, so I tend to play fairly low powered amplifiers, but even so I’m never going to turn my amp up to “10” for a solo. I’ll use a pedal. As far as I can tell, the only people who turn their amps up to “10” are on YouTube, and live in very small bedrooms.

So pedals are inexpensive, they are plentiful both new and used, and the low investment required to get in pedal business means that lots of people are making them. So it’s all good, right? Sure, there is nothing essentially wrong with having too much of a good thing, and over time the number of pedal makers will reach some sort of natural Darwinian limit: The really good builders with grow and thrive, and the hacks and pure copycats will fade away. I’m of the opinion that pedals are somewhat like pizza: None of it is truly bad, and everyone finds their favorite. There are however many bad amplifiers, and spending $300 on some boutique distortion pedal with rare germanium diodes will not hide the fact that your amp sounds like crap. Start with the amplifier and speakers first. Get your core sound down to where you really love what you hear with nothing more than a guitar, a good cable, and your amp. Then go forth and experiment with the little die cast boxes of your choice.

 

 

 

The Fender Bassman Amplifier – The amp for almost everything?

gordon

Preface: Never say on the internet that anything is ever the “best” or you will be hounded by email, gear pages will convulse with derision, and internet servers will glow incandescently straining to handle the volume of traffic proclaiming your incorrectness. So in this post I will completely avoid the term “best’ and merely relate one’s own experience with a particular amplifier.

This story started several months back when my brother Neil called up and said “Hey, I found this really nice amp, you want to go in halves with me?” It seems that our friend Dan Neafsey of DGN guitars had acquired a Fender Bassman Ltd in a trade and wanted to sell it. This is the “nice” reissue of the Bassman with a pine cabinet, GZ34 rectifier and (4) Jensen ALNICO 10″ speakers. It’s very much like the original Fender 5F6 schematic except of course for the printed circuit board, non-carcinogenic capacitors and a 3-prong plug. And it doesn’t cost eight grand. On top of that, it’s a rare “relic” version with some nice mild aging to the tweed, and some faux cigarette burns on the topside. Some find the whole relic thing pretty cheesy, but it looked good and the aging was tastefully restrained. Lastly, Dan had ditched the circuit board and done a point-to-point Mojo Guitar Works conversion with some nice high grade components. So not wanting to turn down a brother in need, I sent him some bucks via PayPal and the deal was done.

At this point I should say that my brother lives about 130 miles away, so half ownership is kind of like joint custody: When do I get to see it, how often, and what about weekend visits? However, Neil also does most of the major work on my car. As luck would have it, it was time for a new timing belt and I headed off to Connecticut with my car and a DGN Tele®.

There are a couple guitar players at the repair shop where my brother works, so there is usually some gear hanging about the garage. They literally have a garage band. Shortly after arrival, my car was on a lift in one bay, and in the other bay was the Bassman warming up, along with a LP Junior, the Tele and a couple pedals.

The garage is a high-bay affair with decent acoustics, and any amp tends to sound pretty big in there. But the Bassman was just on another level. Diving in with the Tele, the Bassman had a wonderful combination of slightly spongy twang, deep full bass, and a room-filling presence that made a typical 1×12 combo sound strangled and puny. This puppy really breathed; and the interaction of some rectifier sag and four little speakers huffing and puffing in a pine box created a connection between guitar and amp that was more mechanical than electrical. Each note had a beginning, middle and end that was totally musical, with a broad projection and sense of texture that you could almost reach out and grab. Open tunings and drop D on the Tele created shivers and silly grins all around. I was hooked.

As I drove back I realized that our mutually arranged weekend visits with Bassman would not do. But what now? There are not any shops around me with cool gear — except maybe mine and I sure didn’t have one — and I was not going hit up Guitar Center hoping to get lucky. So with few other options it was off to the “Magic Devaluator” of all merchandise: eBay. I got lucky almost instantly, and there were three used Bassman Ltd’s with the right specifications all bidding in the $700 – $900 range. So for a little over $800 shipped I got a very clean Bassman Ltd with a couple light scuffs, mint condition cover, and even the glossy cardboard piece they put over the top with the all the sales promo stuff and suggested amp settings. From what I can tell, it’s not really used at all. To finance this, I sold my real ’67 Pro Reverb for close to twice that and came out ahead on the deal, sonically and financially.

Whenever I get a new amp, the first thing I try to do is make it “better”. I hauled out some NOS tubes — Bugle Boys, GE’s, RCA blackplates —  talked to my brother about what he experimented with, and so forth. The amp came with the original Groove Tube/Fender tubes including the USA-made Groove Tube 6L6 ‘s. However, except for substituting one of my NOS 5V4 rectifier tubes that I got from KOS (oddly, rectifier tubes do sound different), nothing really sounded better than the original tubes. Clearly the Jensen speakers sounded great, so I was not going to touch them (plus Neil already tried that and said don’t bother).  Fender had done their homework: The Bassman really needed nothing, and any effort to improve it’s sound took it the wrong direction. Lesson learned.

I experienced a similar phenomena with whatever guitar I plugged into it: The tone was good off the bat, with very little tweaking of the knobs. I tried a lot of guitars: Les Paul’s, an Archtop, various G&L’s, a Rickenbacker, and even a Godin Multiac Nylon string. No matter the guitar, it was never a total “do over” with the EQ. Just maybe a slight tweak of the bass or treble and I was off and running. I would have never imagined bringing my G&L and a Rickenbacker to the same gig, but with the Bassman it might just work. And I’m just talking EQ: I have not even mentioned that the Bassman has a bright and normal channel,  each with hi and lo inputs, and you can jumper the inputs to use both channels at once.

I was flabbergasted: All these years I have been messing around with amplifiers, and it never once occurred to me to try a Tweed Bassman. Now I wonder why they aren’t more popular. To some degree the great popularity and legend of the Blackface amplifiers led me to believe that this style of amp was the holy grail of tone. After trying and failing with a few real Blackface Fenders, I discovered in a roundabout way via a ValveTrain Trenton that the Tweed tone really suited my style. Between the Bassman and my Dr. Z Remedy, I’ve pretty much got things covered. Which I guess means that I’m really a Marshall fan because the Remedy is based loosely on a Plexi (but with 6V6 tubes) and the Bassman is the basis for the JTM45. My whole amplifier belief system has been upended by the Bassman.

There may be some perfectly good reasons not to want a Tweed 5F6 style Bassman. You might find that an amp that looks like a big brown suitcase is the wrong look for you, your band, or your peers. I suggest you get over that one, and just have them listen to it or look the other way. Or, that a 4×10 amp is too heavy and bulky. The amp is a little boxy, but the pine cabinet and ANILCO speakers keep the weight down to around 50 pounds, which is way less than any tube 2×12, and even some tube 1×12 combos (If size and weight are truly major concerns, check out the ValveTrain Trenton for a  vibe that’s close, but in a smaller package). You might also be rightly concerned that a Tweed design amp won’t handle pedals or high gain very well. While this is generally accurate of the Tweed genre, the Bassman was intended to handle a bass guitar signal, and therefore does have pretty good headroom, and it’s 50 watts. I find it works pretty darn good with pedals, although if truly high gain rock/metal is your thing, then you will look silly playing a Bassman, and you are free to purchase the large ominous-looking black box of your choice. But if your styles include blues, roots, indie and a good dollop hard driving rock — think  JTM45 — there is no reason a Bassman and a couple well chosen pedals won’t get you there in style, and at reasonable volume levels, and set you back less than a grand. Plus you can finally bring your Rickenbacker to the gig.

In Defense of Good Guitar Amplifiers

gordon

This is somewhat a continuation of an earlier blog regarding the benefits of a good guitar amplifier, owning more than one amplifier and also the general state of amplifier sales.

Over the past decade we’ve witnessed a couple significant trends in amplifiers. One of those trends was the rise of the boutique amplifier business. This trend may have peaked at the during the recession of 2009, but there has been an explosion of small builders making everything from faithful vintage reproductions, to interesting and creative new designs. The boutique boom may have also reinforced the realization that 15-30 watts is typically more than enough for most jamming or club situations.

The rise of digital modeling amplifiers was not originally a topic that I was going to address, but it at least deserves honorable mention. Early pioneers like Johnson and Line 6 drove the concept that a player could in theory have many historic amplifiers in one cabinet. This has become a permanent fixture in the amplifier world, culminating in high end audio products like the Eleven Rack and the Fractal Axe-FX. Some of these products have frighteningly good emulations, although typically the more “processed” the sound you are emulating the better they perform. Getting a Fractal to sound like The Edge is more satisfying than getting it to really sound like a Deluxe Reverb.

The other significant trend over the past 5-7 years is the rise of really inexpensive tube amplifiers. In my opinion, once the boutique industry proved that simple low-powered amps were a great way to get wonderful tone at reasonable volumes, manufacturers with access to low cost sourcing took that concept to overseas with the idea of offering much lower cost with the same features. If you think about it, a 15 watt amp with three tubes and four knobs is not technically hard to make, and in China it’s also incredibly cheap to make. So now instead of paying $1500 for a hand-wired Tweed Deluxe clone, a player can go to their local big box and get a 10 watt all-tube Chinese screamer for $299.

So the trend these days is that players are buying fewer amplifiers, and they are also buying cheaper amplifiers. In 2008 the average price paid for an amplifier was about $340, and there were 1.1 Million sold. In 2011 amplifier sales were 900,000, and the average cost had dropped to $255, 25% drop in average price (in contrast the average guitar price over this period dropped only 9.8%). This is a significant trend over a short period of time, and higher end amplifier builders must be feeling it. While the drop in average price may be partly due to post-recession caution and less disposable income, I think there is also a perception that, “Hey, it’s got tubes and it’s a grand less, why spend more?”

Why indeed. Guitar players incessantly focus on their axe, but often treat the amplifier as an appliance that will instantly transform the wonderfulness of their guitar into beautiful music. It’s almost as if you could plug into your washing machine and essentially get the same tone. Truth be told, the amplifier is at least 50% of “your sound,” maybe more. Heck, the just the speaker in the amp is a major determining factor in how you sound.  Amplifiers are inherently complex and every component — transformers, capacitors, type of tubes, layout, speakers, component values — has a contribution to the overall quality of your tone. Every manufacturer has a cost target they need to meet, but there is no way that the $299 amplifier manufacturer pays the same attention to detail regarding component selection than the guy making the $1000 amplifier does. When a manufacturer chooses to save $1.50 by installing an inferior speaker or transformer, they risk making an otherwise reasonably good product into something flat and uninspiring.

With amplifiers it’s not just the labor that costs money, it’s the hardware. A worker in China can solder just as well as a worker in the USA. They can probably fabricate a cabinet and apply tolex just as well too. It’s not as important that you can solder, it’s what are you soldering. Is it a transformer made by people who really know what makes a quality product optimized for guitar, or is it a transformer that went out for bid and was chosen because it was $.15 cheaper?

Historically, China’s edge has of course been labor. And while the landscape in China is changing, in general labor has been cheap, and the majority of their costs are in the materials. When it comes to manufacturing, they are much less sensitive to labor cost as they are to material cost (in many ways the complete opposite to the US). When a Chinese manufacturer needs to reduce cost, there is much more leverage in reducing material cost than labor cost (this is changing too: See Indonesia). The plain truth is that China is a very good place to assemble product. The risk in China is not the ability to assemble quality products, but the quality and reliability of the material supply chain. With material cost being king, there is intense pressure to squeeze every cent out of material cost, often to the detriment of product quality.

The point is that component quality and selection is critically important to the sound qualities of a guitar amplifier, and  the costs of these materials are essentially the same regardless of where the product is manufactured.  The $299 guitar amplifier is not using the same components as the $1000 amplifier, period. The parts really matter, and at this time, most of  the top quality amplifier components are not being made in Asia. Can you assemble a “kit” of top quality components and ship it to China for assembly? Sure, and you will pay to ship the components to China, and then you will pay to ship the amplifier on a boat back to the US. It will still cost less, but probably not a lot less, and that amp will have a pretty large carbon footprint.

Ultimately, good amplifiers cost money, and good amplifiers matter just as much as your guitar. I’m not suggesting that in order to be happy and have good tone you must spend at least $1500 on an amplifier. But to some degree cost and quality of sound are inextricably linked. Take the Vox AC 30 for example: They are made in China and run anywhere from $999 to $1500. Vox/Korg is taking advantage of lower cost labor, but they are also not skimping on components, including shipping British-made speakers to China. These amps are made in China, they are not junk, but they are also not inexpensive.

A quick story: We were recently displaying at a guitar show that had a lot of custom builders in attendance. So this was not an amp show, it was a guitar show. But some of these builders were displaying guitars that cost thousands of dollars, but all they brought to demo product were $150 10 watt modeling amps. Result: They sounded like garbage. What were they thinking? On the other hand, we brought a couple Rivera heads, a Rivera 1×12 cab (and to be to “PC” a Rivera RockCrusher Attenuator). When somebody tried any of our guitars, people stopped and listened. The guitars sounded good because the amps were good.

Playing through a really good amplifier that melds with your tone and style is a transformative and immensely satisfying experience. Choosing an amp needs to be taken seriously, and placed on the same level as choosing your guitar. You may even find that one  amplifier — just like one guitar — does not adequately address the range of tones that you are looking for. However, once you find an amplifier that speaks to you, you may find that the constant urge to experiment with pedals, pickups and guitars suddenly becomes much less urgent.

The Fender IPO – Good News for Guitarists?

gordon

The announcement this past week that Fender is releasing its Initial Public Offering  may sound like the American Dream come true. After all, isn’t it the goal of every company to someday go public and cash in big? That’s the image of an IPO anyway. However, not all IPO’s are glamorous get rich stories, and the numbers behind the Fender IPO are not all that rosy.

Disclosure: I am not a professional financial analysis, these are just my own observations from my experience in business over the past 25 years.

In rough terms, Fender had $700 million in sales in 2011 and a net profit of $19M. That’s an improvement from 2010 when the company posted a $1.7M loss. But a net profit of $19M on sales of $700M is a return of only 2.7%. If a 2.7% profit ratio sounds rather unexciting, that’s because it is. Whether private or public, a 2.7% profit ratio is concerning. In a private company while there might be pressure from an investor group (if there is one) their is are requirements to make the company’s performance public. Actually, the financial performance of many privately held companies may not be that great in Wall Street terms. To do some degree if the boss is happy, then everybody is happy. The true financial performance is known only to the person or group that controls the company

Once the company goes public, the financial performance is there for all to see, and of course stock price is closely tied to financial performance. Going public is a great way to raise capital, but the company is obliged to show its dirt laundry. How many investors can you attract with a 2.7% net profit, unless you have plans to do much better. And soon, because it’s Wall Street and they hate to wait.

The second issue with the Fender IPO is debt. The company has $700M in sales, but also about $240M in debt. The stated goal of this IPO is to pay down about $100M in debt, and the balance is for operating capital. There are a couple concerns with this: First, that’s a pretty high debt ratio, and as with any debt there are interest payments on the debt. Also, if the company is selling stock to raise additional operating capital, it could have a cash flow problem too. Cash flow essentially is: Are you taking in money fast enough to cover what you are paying out every month. Debt servicing costs, high inventories, and of course the pace of sales can all have dramatic affects on cash flow. It’s good to sell lots of stuff, but it’s cash flow that determines whether a company lives or dies.

The third factor is the role of Private Equity Capital (PE), in this case an organization called Weston Presidio. Weston Presidio is a major investor in Fender, with about a 40% ownership prior to the IPO, and plans are to retain a similar level of ownership afterward. Weston Presidio is not in the music business. They invest in everything from Restaurant Chains to Movie Theaters to Fender. The goal is to invest in a company, “help” it become more profitable, and then exit that company hopefully at a substantial gain. It’s not very romantic, but if done properly the investors make a lot of money.

Being “helped” can sometimes cause the company being invested in quite a lot of pain. Often a PE group will buy into a company with some amount of their own cash, and money they have borrowed. Once they have control of the company, the company will borrow money to pay the PE group back, effectively putting the company in debt. This is the classic case of Guitar Center, which was bought by Bain Capital and is now loaded with over a billion in debt. Guitar Center loses money every quarter because the cost of debt servicing wipes out its profits. Here is what Moody’s said about Guitar Center last May, “A Moody’s analyst concluded that growth in sales, comparable store sales, and profits will not be sufficient to trim the company’s approximately $1.6 billion debt load to a more manageable level.”   So while I don’t know for certain, part of Fender’s debt could be a by-product of Weston Presidio’s involvement. Companies may seek out PE because they need cash to fund R&D, expand their product lines, or maybe the founder just wants to sell out and go fishing. But PE companies are rarely in it for the long haul, the desire to cash out at a profit in 3-5 years can place an enormous amount of stress on the company.

One last quick measurement of a company’s overall health is their revenue dollars per employee (Total Sales/Number of Employees). A good rule of thumb for both manufacturing and retail organizations is a number somewhere in the range of $300 – $400K. If it is a privately held company, the Revenue per Employee (RPE) number can be substantially lower as long as the major stake holders are in agreement on the definition of success. However if the company is publicly traded, Revenue per Employee — and more importantly Earnings per Share — are critical metrics. Publicly traded companies are all competing for investor dollars, and weak performance metrics makes it hard to attract investors and depresses the stock price. Using 2010 data, Fender’s RPE was $223K. Gibson’s is even more worrisome at $99K, while some Pro Audio companies like Harmon and Audio Technica are $331K and $556K respectively. Of course we are not taking margin into consideration. If you have very high margins you can be financially successful with a lower RPE (because you keep more of each dollar you earn). Still, a low RPE is not a good sign, and Fender’s 2011 net income of $19M strongly suggest that they have a problem with margins, debt, overhead, or some combination of the three.

WHAT DOES THE FUTURE HOLD FOR FENDER AS A PUBLIC COMPANY?

Fender has some strong assets: Good market share, tremendous brand recognition, famous artists that endorse their product, and two of the most classic guitar shapes in history. But it’s clear that they are not that financially healthy. It’s likely that conditions will improve as the economy continues to strengthen, but they have basic issues of profitability and long term debt. Weston Presidio likely wants to get out in the near future — at a profit — which means that the company needs to be attractive to investors so that people will want to buy stock. To compete for investor dollars Fender will have to demonstrate that they can increase their profitability: Lowering costs, raising prices, and/or reducing debt. Increasing sales will help too, provided that sales can be increased without increasing fixed costs. It’s that simple. People invest in company stock because they they think the value of the company will increase. The big question for music lovers is whether increasing shareholder value result in better product. All options are likely on the table: Outsource more products to low cost countries, use less expensive materials, raise prices, or sell off under performing brands (Guild, Charvel, Hamer, etc). Some Guitar-Loving White Knight could always come to rescue and infuse Fender with both cash and a love for the products and the company history. Or a group of demanding investors could force the company to implement severe cost cutting measures in order to improve profits and increase stock value. Unfortunately, the latter scenario is more likely, since if there was a White Knight with deep pockets, Fender would have not needed to go public in the first place. Let’s all hope for the best, but even for the optimists the prognosis is lukewarm.