fear of people in my 4month old german shepherd puppy

Question
my gsd puppy is from american lines.  he is wonderful with me and smart and obedient and bold as can be  outdoors and when we are alone with my 9 year female shepherd and my 5 cats.  however, when my 18 year old son comes in from school, he avoids contact with my son and hides under a table or the like. when my college age daughter comes  home on the weekend,
he definitely is frightened of her and hides.  if i attempt to have her take him out on a leash he tries hard to get away from her, in a panic.  when he is cornered by her he growls and barks at her.  i have had  him for 3 weeks and this doesn't seem to be changing despite gentle handling and
my appropriate training and discipline. i have had five previous german shepherd puppies and they have all been either half or fully german and i have never had a problem with any of them, they were all very people oriented.  
the breeder swears nothing happened to him and i made sure that i stuck my hand in every kennel on her property (she has  15 dogs) and they all were very gentle and people friendly.  i am at a loss over how to progress.  the breeder will take him back but she already has so many dogs and still has three puppies that aren't getting any younger and a new litter on the ground.  i don't think that sending him back there would be doing him any favors.
i could easily place  him with someone else with no kids and german shepherd experience but would i be doing them any  favors?  i don't know what the right thing is to do.


Answer
Some dogs stand poor care better than others.  Although the importance of early socialization has been known for 40-50 years, many breeders are clueless or just don't bother.  I think yours needs to rethink how many dogs she is breeding, and her obligation to give them proper care.  We are slaughtering millions of dogs a year for lack of homes including many purebred GSD's.  See www.petfinders.org

His behavior is exactly as predicted by the behaviorists for a dog not exposed to a variety of people before it was 12 weeks old.  You may never change it completely, but should be able to eventually improve it.  When your children come home, make a great show of welcoming them.  He will take his clue from you.  Make sure they have treats for him.  Have them avoid eye contact and keep their hands away from the top of his head.  Have them give him a butt rub if he will let them.  They don't want to push him, but be available to him.  

If things don't go well, and you decide to rehome him, look at a breed rescue.  You may find a rescue near you starting at http://www.akc.org/breeds/rescue.cfm