Leo Fender’s Legacy: G&L; Sales on Rise

More than two years after the death of Leo Fender, his glasses are still where he left them on his desk at G&L; Guitars. So are his coffee cup and his last few notes; and the calendar hasn’t been changed from March, 1991.

A little strange? Maybe. But Fender, after all, is nothing less than an icon. A Japanese film crew was through the workshop not long ago to shoot a documentary. A British crew has been there since to film another.

Fender was one of the first people to get really rich from rock ‘n’ roll. He didn’t do it in a recording studio or a record company executive suite, either; he did it in a factory.

He was the first person to mass-produce a first-rate electric guitar, a sort of Model T of rock ‘n’ roll. His sleek, futuristic Fender Stratocasters--so well-designed that they don’t look much different now than they did 40 years ago--have been played by Buddy Holly, Jimi Hendrix and Eric Clapton, not to mention the garage band down the street. Not bad for a middle-aged electronics nerd.

Making guitars is a sexier business than, say, making concrete, and so the tale of what happened to Fender’s companies encompasses corporate intrigue, Japanese millionaires, bitter lawsuits and intense rivalries.

It starts in 1965, the year Fender got rich. That’s when he sold his first company, Fender Musical Instruments Corp., to CBS for $13 million--the same amount that the TV network had paid for the New York Yankees a few months earlier. Fender never had anything more to do with the company; in fact, he thought the quality of the guitars CBS made was lousy, a judgment with which plenty of guitar players concurred.

Enter John C. McLaren, an urbane Englishman who was put in charge of the problem child when he was appointed president of CBS’ musical instruments unit in 1981.

One of the things McLaren did was start making guitars in Japan; the weak dollar meant that American-made Fender guitars were hugely expensive abroad. But he fought with CBS over moving most of the rest of Fender’s guitar production overseas. After all, part of the mystique of the guitars was that they were made in America--and Fender already had a quality problem.

By 1983, McLaren had had enough. He left the day after his 50th birthday by what he says was “mutual agreement.” After he left, Fenders started to be made in places like Korea and even--for a time--India.

Almost immediately, McLaren started talking to CBS about buying the musical instruments division, which also included piano maker Steinway, where McLaren had worked as a young salesman. The division was a disaster, and CBS was looking to unload--after all, here was a conglomerate that had taken successful manufacturers like Fender and in a few years had wound up losing money on them.

But somebody leaked the story to the Wall Street Journal, dozens of other suitors rushed in waving money, and the deal fell apart, McLaren says. Instead, a McLaren protege named William C. Schultz, the president of Fender, bought the company in 1985 for $12.5 million--about what CBS had paid for it 20 years earlier.

Schultz brought in Japanese investors to help finance the deal--including “Mike” Yamano, head of a hundred-year-old musical instrument retailer in Tokyo called Yamano Music Co. Yamano distributed Fender guitars in Japan.

With the CBS deal down the drain, McLaren turned around and bought BBE Sound Inc. with a group of venture capitalists--and Yamano again, who McLaren says owns 5%. (McLaren himself plunked down $50,000 for a 20% stake.)

BBE was part of Barcus-Berry Inc., a Huntington Beach maker of pickups for electric guitars. (Pickups are the little metal strips under the strings that convert the strings’ vibrations into an electrical signal and send it on to the amplifier.) BBE made an electronic box for stereos that replicated the clarity of live music. It had huge dreams of becoming another Dolby, of eventually being attached to every stereo made--but it was in dire need of more cash when McLaren found it.

Last year McLaren and BBE bought G&L;, Leo Fender’s last company. (He had come out of retirement to start it in 1980.) Indeed, much of the last 12 years of McLaren’s life has been spent handling Leo Fender’s legacy.

And G&L; is one of the last bits of that legacy left in Orange County; Fender Musical Instruments, by far the bigger company, moved to Scottsdale, Ariz., shortly after Leo’s death.

Fender’s estate sold G&L; to McLaren for a shade less than $2 million; McLaren says it is selling lots more guitars since he increased the advertising budget and used BBE’s distribution network to move the product.

What he’s too diplomatic to say is that Leo Fender, according to colleagues, was never much interested in the business side of guitars; he preferred to tinker with the innards of his instruments, improving pickups and bridges, getting patents right up to the end. Guitars fascinated him, though he never learned to play one.

The 35 workers at the G&L; plant on Fender Avenue in Fullerton are now knocking out 30 guitars and basses a day, or three times as many as were made at the plant under Fender, according to McLaren. That’s about $4 million worth of guitars at wholesale this year.

BBE’s sales of its electronic equipment are a little larger, but the whole company is doing less than $10 million a year, McLaren says.

The guitars, which retail at the upper end of the medium-priced range--$795 to $1,295--look exactly like the old Stratocasters and Telecasters, which is said to greatly annoy Fender Musical Instruments.

Fender himself, though, kept improving the new guitars’ hardware and electronics, adding better bridges and pickups. Competitors concede that the guitars are pretty good.

“The improvements Leo made aren’t night and day,” one said. “They’re incremental things, stuff nobody but a serious guitar player would notice.”

Meanwhile, relationships between Fender and G&L; are decidedly sour, despite their mutual investor.

After Fender died at 81 of complications from Parkinson’s disease, Fender Musical Instruments sued G&L; to get it to stop using Leo Fender’s signature on some of its guitars: Leo’s name belonged to Fender Musical Instruments, the company said. Yamano and another Japanese investor in Fender, McLaren says, urged G&L; to settle what had turned into an incredibly nasty fight between two former colleagues. G&L; did; it doesn’t use Leo Fender’s signature on the guitars anymore. Former colleagues McLaren and Schultz, Fender’s president, reportedly rarely speak.

As for Leo’s legacy, Fender sales are on the rise again since it was liberated from CBS. Its less expensive guitars are still made abroad.

As for G&L;, it’s still small, but it has a pretty good product and McLaren’s experience in the guitar business.

“I worked for big companies all my life,” McLaren, 59, said in an interview Tuesday. “I hated the CBS bureaucracy. I decided I wanted to be an entrepreneur. And here I am.”