I can live with rampant foreclosures, skyrocketing unemployment, massive government budget cuts, and a plummeting stock market, but when a recession has threatened the existence of Fender guitars we've reached a point where the very threads of society are about to be ripped asunder.
An interesting article in the NYTimes over the weekend about how Fender Musical Instruments, Inc has been hit hard by the recession. This is a good example of an economic "luxury" good, and this is the type of good you would expect to take a hard demand hit when incomes go down during an economic slowdown. Making matters worse are a complex combination of effects caused by Wall Street insiders, changing musical genre tastes, competition from international firms with cheaper mass production techniques, and even Mitt Romney!
Fender is an interesting microcosm of the "American Dream" company - Leo Fender was just a radio repairman who cobbled together one of the first electric guitars with a chunk of wood and a radio transistor. One thing led to another from there, and soon his products were being used far and wide - chances are most of your favorite songs feature either a Fender guitar, bass, or amp. The soundtracks of whole generations were played on Fenders.
From the early days of a small Mom & Pop radio store though, Fender has had an uneasy growth path as it has become a giant global corporation. The original "dark days" of Fender came in the late 60's and 70's when the company was bought out by CBS (incidentally, Leo's radio repair store was started with a $600 loan - he sold his instrument company for $13million about 25 years later). This period is typically associated with a dramatic dip in quality as CBS instituted widespread cost savings policies, and guitars and amps from this period are much less desirable to musicians than the pre-1965 versions.
(although I personally have a '68 Bassman amp and '79 Stratocaster that I happen to think sound as good as anything I've heard - at least when they're being played by someone better than me ... see below for pics of my amp being played by Marc Ford and Jeff Massey at various points in the past! :) If you squint you can see it in the background. And yes, I'm just shamelessly bragging about my cool amp, sorry).
CBS spun off the company eventually, and now it is controlled by a private investment firm, Weston Presidio, that recently tried to take the company public. There was massive embarrassment however when investors had no interest - this made the Facebook IPO debacle look like a rousing success.
Interestingly, you can even tie part of this story to Mitt Romney and Bain Capital (it seems like you can tie everything to Bain ... it's like the Kevin Bacon game). The single biggest seller of Fender instruments is the chain store Guitar Center, which is currently struggling and being controlled by Bain. Investors are worried that if Guitar Center goes, Fender will as well.
Part of the reason for these struggles is summed up in this (to me, chilling) quote from the Times article:
"Times have changed, and so has music. In the 1950s, ’60s and ’70s, electric guitars powered rock and pop. Today, turntable rigs, drum machines and sampler synthesizers drive music like hip-hop. Electric guitars, huge as they are, have lost some of their old magic in this era of Jay-Z, Kanye West and “The Voice.”
Games like Guitar Hero have helped underpin sales, but teenagers who once might have hankered after guitars now get by making music on laptops. It’s worth remembering that the accordion was once the most popular instrument in America."
Please America ... don't let the electric guitar become the accordion of the future! Buy guitars today and save our economy.
PS: extra credit assignment for my Econ 215 students - draw me a graph of the market for Fender guitars that shows the supply and demand effects outlined above
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