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Summer of Pressure for Big Three?

Friday, 4 May 2007 | 1:14 PM ET

There's plenty of talk today about the possibility of $4 gas this summer. If that happens, this could be one long hot summer for the Big Three. Thursday, when I talked with him, General Motors CEO Rick Wagoner indicated the country's largest automakers are already noticing a repeat of last year, when buyers moved from big rigs (trucks and SUVs) and more towards smaller cars. Well, guess what? If gas hit $4 a gallon, that migration will turn into a wave of problems for the domestic automakers.

This year, Ford and GM are both seeing lower truck sales (down 5.3% and 7.2% respectively). Chrysler is up 1.6%. These are troubling numbers because trucks are the high profit margin vehicles for the automakers. When those sales tank, so do corporate earnings. Need proof? Look at how Ford lost more than $12 Billion last year in large part because its Explorer sales plummeted while the world's bestselling vehicle, the F-series, also struggled.

The double whammy for Detroit is that slower sales could prompt greater incentives to bring more people into the showroom. Since swearing off the super big deals we saw back in 2004 and 2005, the Big Three have been doing a better job of holding the line on incentives. Year to date, according to the research firm Autodata, the average incentive for domestic vehicles is $3,443 -- an increase of $167 over last year. Holding that line will be tougher if May sales are as sluggish as what we've seen in March and April.

Perhaps the only people who will enjoy the slowdown in truck sales and the potential for greater incentives will be those in the market for a new truck or SUV. But even those people won't be smiling for long if we see gas run up to $4.

Questions? Comments? BehindTheWheel@cnbc.com

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  • Phil LeBeau is a CNBC auto and airline industry reporter based in the Chicago bureau and editor of the Behind the Wheel section on CNBC.com.

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