Elon Musk often blows up at critics, but when Consumer Reports complains, even Tesla's CEO listens

  • The combative Tesla CEO Elon Musk went right to work after Consumer Reports said it would not recommend the Model 3 sedan.
  • The incident highlights the influence the group has over consumer car-buying decisions.
  • The group also has helped set standards as their influence has grown.

Tesla CEO Elon Musk has no reluctance in lashing out at journalists. Or Wall Street analysts. Or employees.

But when Consumer Reports opened its mouth about Tesla's Model 3 sedan, Musk listened. He quickly went to work to resolve the issues the 82-year-old group raised with the latest Tesla model. The response was notable for its swiftness, and it spoke volumes about Consumer Reports' influence.

Judging by what many have said about the Yonkers, New York-based company, Musk may not have had much of a choice but to address its concerns. Since it was founded in 1936, the group's thorough evaluations of cars and other products have been an indispensable guide for generations of consumers.

That reputation persists despite a growing number of rival automotive reviewers, testers and publications in the world, and a declining subscriber base. Much of its reputation hinges on it doing things no other reviewer does. It is a nonprofit organization that secretly buys cars like ordinary customers and has a history of eschewing any form of advertising or other entanglements that could appear to compromise its impartiality. Many of its staff members have backgrounds in engineering and have worked for automakers or suppliers.

Automakers have sued the group, and executives have lashed out over negative reviews. At least one distributor has gone so far as to claim in court that a bad review of a car had demonstrably hurt sales. But that has had little impact on the group. Even in an increasingly competitive media landscape filled with review sites, blogs and other outlets — some of which are formidable competitors — Consumer Reports still manages to ruffle feathers.

On May 21 the group said it could not recommend the Tesla Model 3. Musk didn't publicly disparage the group. Instead, he took the feedback and said on Twitter that the issue could be remedied with a remote update to the firmware on every Model 3 on the road.

The chief concern was the Model 3's long stopping distance. The car took 152 feet to come to a full stop from 60 miles per hour, far more than any contemporary sedan and even 7 more feet than the Ford F-150, a full-size pickup.

Tesla said the Model 3 had 450,000 reservations at the end of its first quarter of 2018, and the car has garnered praise from numerous outlets. But a bad review from Consumer Reports on such a new, and closely watched vehicle could have dealt a serious blow to Musk's plan to make the Model 3 the best-selling mid-size sedan in America, especially after less than a year of production.

After Musk spoke with Consumer Reports' lead automotive tester, Jake Fisher, he did something Fisher never saw before. The electric car maker issued a remote software update to all Model 3 cars on the road, reducing every vehicle's stopping distance to an acceptable degree, just days after Consumer Reports issued its first review.

"I think it is fair to say that is an industry first," Fisher said as he stood in the garage at Consumer Reports' test track in rural Connecticut, in front of each of Tesla's three models the group has bought for its tests. Fisher worked as a development engineer for General Motors before joining the group.

"The rate of change was incredible. In the very same week, where I had a conversation with Elon Musk and explain the problem, they were able to verify it and send our vehicle an update."

Tesla's reaction to the Model 3 brake test was quite a reversal from how it behaved in late 2017, when Consumer Reports said the Model 3 would have an "average reliability" rating, saying it would be "par for the course" in its class.

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At that time, the electric car maker shot back. "Consumer Reports has not yet driven a Model 3, let alone do they know anything substantial about how the Model 3 was designed and engineered," a Tesla spokesperson said. "Time and time again, our own data shows that Consumer Reports' automotive reporting is consistently inaccurate and misleading to consumers."

Tesla declined to comment on its different responses.

Deciding on a car

Consumer Reports has more than 7 million members who read its print magazine and website and many more read about which cars it recommends in other media coverage. In the industry, only a few other groups, arguably J.D. Power and the Insurance Institute for Highway Safety, are watched as closely as those from Consumer Reports.

Securing a recommendation from the group can make a demonstrable difference in a brand's sales, industry watchers say. And a bad one can incur anger, and even lawsuits.

"If they come out and give you a 'not recommended' on a vehicle, that is not so good," said John Mendel, who ran American Honda Motor for more than a decade before he retired earlier this year. "I don’t think people run for the hills based on a bad rating, but Consumer Reports certainly does have the power to change the outcome. It is a big deal. Getting a 'not recommended' from Consumer Reports is not recommended."

Its influence tends to hold more for mainstream vehicles, said Bob Lutz, former vice chairman of General Motors.

"Consumer Reports is a significant factor in customer decision-making on what brand or model to buy," Lutz said. "The important difference is whether it is a sport utility vehicle, a sports car or a minivan. The more basic family vehicle it is, the more important Consumer Reports becomes."

Consumer Reports readers tend to be middle-aged and well-to-do. The average age of its readers is 51, and annual income is over $100,000, a company spokesperson said. But, Italian super car enthusiasts are probably not poring over the publication's reviews.

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"We are covering what people actually are going to buy," Fisher said. "Now, there are some cars we aren't going to test. We haven't tested any Ferraris or Lamborghinis lately. I am very sad about that, but the truth is there are not many people buying those vehicles, and they probably aren't looking at Consumer Reports."

Still, the organization's goal is to cover about 90 percent of the U.S. car market, and it does evaluate vehicles in just about every major category.

Part of how it achieves such trust among consumers is through its transparent and rigorous testing process and a strict commitment to eliminating potential conflicts of interest.

The group puts cars through more than 50 tests, ranging from the strictly empirical to the more subjective. And the group stresses that it evaluates cars in ways that try to mimic how its members think ordinary owners will actually use them.

"They do spend a lot of time and effort and energy testing everything they review," said Samir Husni, a professor at the University of Mississippi who studies magazines.

Husni has visited the group's testing facilities and was impressed by the thorough approach to reviewing products.

"I was stunned by the amount of tests and the methodology they use," he said.

Testers start by buying vehicles anonymously at full sticker price, ensuring they will get the same kind of car any consumer would end up with. Last year, Consumer Reports spent about $2.2 million on cars, most of which it eventually recoups. It sells tested cars to employees first, and then offloads whatever is left over to the public.

Once the car is purchased, it goes through a 2,000-mile "breaking-in" period, where testers simply drive the car around on roads and familiarize themselves with it. Lead engineer Fisher says this is an important part of the process, since cars come off the factory line a bit raw.

A car needs to be sat in a bit, the way backpackers need to break in boots so they fit the contours of their feet and style of their gait. For example, brand new tires might not hit the road in every spot at first.

Then formal testing begins, at Consumer Reports' test track in Colchester, Connecticut — an old race track the group bought in 1986 after it had previously closed due to neighbor complaints about the noise coming from the racing cars.

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There, testers do things like swerve through courses of orange cones to simulate a driver dodging obstacles, drive over a trough of water to see if tires hydroplane, climb up a hill pocked with boulders to test four-wheel drive systems.

There are also more subjective tests, such as the group's satisfaction survey, where they simply ask owners how much they like their cars.

Then these results are all compiled, and the group arrives at a rating for the car, on a scale from 0-100, and decides whether the vehicle is worthy of a recommendation.

Consumers see this consistent and in-depth approach as a way to cut through some of the hype or partiality that some feel can affect vehicle reviews.

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But with the rise of the internet and the proliferation of outlets that review products on blogs and platforms such as YouTube, Consumer Reports has found itself in a changed media landscape.

Growing competition

The current 7 million member count is a drop of more than 1 million from the 8.4 million subscribers Consumer Reports had in 2014, according to its annual report. The group's revenue from subscriptions and newsstand sales fell to $205.5 million in fiscal 2017, down from about $234.2 million in fiscal 2013.

In recent years, as membership and subscription revenue declined, the group cut costs, resulting in layoffs.

It now faces some formidable competitors, such as the site The Wirecutter, now owned by The New York Times, which boasts a younger readership.

The group has also suffered its share of criticism and controversy over the years.

Japanese carmaker Suzuki sued the group in 1996 over an unfavorable review of the Suzuki Samurai. The two parties settled and the case was dismissed.

Then another Japanese carmaker Isuzu filed its own lawsuit for a negative review of the Isuzu Trooper. The jury found in favor of Consumer Reports and awarded no damages to Isuzu.

Around the same time, an Isuzu distributor in Puerto Rico filed a lawsuit over the same review, arguing that it had hurt sales. The case was dismissed.

The group also had to retract a report on infant car seats in 2007, after it was revealed there were problems with the test data.

Auto industry executives view the group with a mixture of respect, fear and frustration.

The group plays an important role in the auto market and it does it well, said Johan de Nysschen, a longtime auto industry executive who ran Audi, Infiniti, and most recently, Cadillac. He said he has heard from executives he has worked with in the past that somewhere around 60 percent of all luxury vehicle buyers consult the publication before finalizing their own purchases.

"Firstly, just by virtue of the impact that they have, one views them with respect," de Nysschen said. "But I also would say, Consumer Reports is not quite the sole custodian of the body of automotive knowledge that they like to think they are, and that sometimes can create some irritation with automakers."

In one sense, it is laudable that Consumer Reports wants to keep an arms-length distance from the automakers whose products they evaluate, de Nysschen said. However, at times, that has made it difficult for companies to explain details in their products or place things in context.

Jake Fisher, Director of Auto Testing, Consumer Reports.
CNBC
Jake Fisher, Director of Auto Testing, Consumer Reports.

In response, Fisher said the group has an open-door policy with automakers and welcomes industry executives to its test facility and track.

As someone who has spent much of his career at higher-end brands, de Nysschen said he thought the group's opinions were of luxury vehicles were influenced a bit too much by price.

"Luxury goods are expensive, partially because of the assumed excellence of the product, but also because of the reality of the intangible value of the brands. And I think that is an important consideration for buyers, it is what they want to buy. And I think Consumer Reports doesn't recognize the brand aspect as much as they should."

Fisher said de Nysschen is correct that Consumer Reports does not rate brands, which do matter to many customers. Nor, for that matter, does it rate styling, which is also important to many buyers. But he said he doesn't think the group unfairly rates luxury automakers. For example, the group has rated luxury vehicles from Audi and Genesis highly.

The group have also at times had a rocky relationship with domestic auto manufacturers.

"Over time some of their survey methods have been controversial, and they have at times been accused of a pro-import and anti-U.S. bias," Lutz said. "I personally observed that 20 years ago, but I think that is no longer the case."

In 2006, for example, then-GM executive Lori Queen blasted the publication after it gave a hard review to the Chevrolet Cobalt, prompting an apology from then-GM CEO Rick Wagoner.

"They are the most unprofessional group of people I have ever worked with," Queen wrote at the time in an email to trade publication Automotive News. "They are totally nonobjective and go to great extremes to paint a picture for their paid subscription readers, who primarily buy Japanese cars. They don't consider price or price differences, they don't consider model mix or consumer preferences, they buy the cheapest car they can find (generally) and then base their opinions on a limited sample."

The group said in response that it simply looked at the data and determined which cars came out on top.

Consumer Reports still does have a lot of imports at the top of its lists. But in recent years, American vehicles have scored highly as well. The 2018 Chevrolet Impala received a glowing review — it's on the group's list of the 10 best cars of 2018. The Ford Fusion hybrid sedan also comes recommended, as do the Ford F-150 and Ram 1500 full-size pickups.

"The domestic industry has changed, tremendously," Fisher said. Detroit used to try to compete with imports strictly on price, rather than on quality and performance, he added. But that has changed. The Big 3 have invested a lot more in improving their vehicles, and it has started to show, he said.

"It is a completely different market," he said. "It is not just about going and picking the Japanese car, because you think that is the reliable one. You need to go look at the Koreans, you need to look at the domestics."

When automakers have pushed back on Consumer Reports' methods or results, the group has tried be as transparent as possible and explain its choices, Fisher said. Over time, many automakers have come around.

"Generally, when we find a problem, they fix it," he said. "They listen to us and they fix it. We have seen that time and time again with multiple automakers."

Setting standards

The group also tries to educate consumers through its publications and has an advocacy group, Consumer's Union, which pushes for things like safety features on vehicles, such as backup cameras and electronic stability control.

Over time, this means the group has gone from being a reviewer of goods to a setter of standards, and it reflects how much its power and influence have grown, said Mendel, the former Honda executive.

"They are setting standards by which they judge whether are going to recommend or not recommend something, based on whether it has a certain safety feature, whether that is federally mandated or not," he said.

"I am not saying that is a bad thing," he added. "I just think they wield a lot more power over driving content on vehicles than they did when they started out."

Given the rapid technological advancements in the automotive industry, Fisher sometimes worries his team is falling short of its ambitions.

"I would say what really keeps me up at night is whether we are fast enough," Fisher said.

The rise of semi-autonomous driving systems has prompted concerns about whether Consumer Reports is evaluating the safety of these systems as fast as automakers churn them out, he said.

Also, Fisher said he is nervous about the proliferation of potentially distracting cabin features in cars, such as those found in on-board infotainment systems and other dashboard controls.

"There are cars out there that give you a full web browser that is available for you as you drive," he said.

"Sometimes," he added, "I feel like automakers shouldn't just ask if they can do something, they should ask if they should."

Correction: The jury in the Isuzu lawsuit found in favor of Consumer Reports and awarded no damages to Isuzu. An earlier version misstated the decision.

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