Enterprise risk management does not have to be complicated. It does have to be useful. Can it help with the crisis at General Motors Corp., Ford Motor Co. and Chrysler L.L.C.?

Risk identification

The Big Three have the following risks:

Lagging sales. GM alone once had half of the U.S. auto market. Now GM, Ford and Chrysler combined have less than half the market. While GM remains No. 1, Toyota Motor Corp. is a close No. 2 in U.S. market share.

High costs. The companies have bloated salaried staff, probably 25% more than needed. Hourly labor costs are not competitive.

Legacy costs. The companies provide prohibitively costly retirement and health care benefits.

Dealerships. All three have too many dealers. With the same level of U.S. market sales, GM had 7,000 dealers before closings. Toyota had 1,500.

Contractual commitments. Contracts support a Jobs Bank program with 90% of wages and benefits to laid-off employees and revenue bonds for municipalities that financed closed facilities.

Auto company management. The companies have not had the ability or the courage to make desperately needed changes.

Risk mitigation strategies

The Big Three can mitigate the risks as follows:

Lagging sales. Become smaller. Some brands, such as Chevrolet, Buick, Cadillac, Ford, Chrysler and Jeep have considerable loyalty. Even the quality is acceptable. Focus on them along with hybrids. Reduce U.S. manufacturing plants from 35 to 20 or so. Sales will come into balance with available and desired vehicles.

High costs. Cut them to competitive levels. Streamline salaried positions. Reduce hourly labor costs.

Legacy costs. Face the reality that legacy costs are not affordable. Ask the government for help to reduce economic disruption during a transition.

Dealerships. Close many of them. A horrible action for local communities, but a probable outcome in any case.

Contractual commitments. Break them. Sorry about that. Tough times can be tough.

Management. Ford President and Chief Executive Officer Alan Mullally and Chrysler CEO Robert Nardelli may be crisis managers. GM CEO Rick Wagoner is more problematic. For all three companies, change the managerial cultures.

Risk mitigation options

The companies, in partnership with the U.S. government, have specific options:

Lagging sales. Reduce production. Eliminate brands. Close plants. Whoops. The United Auto Workers and municipal contracts make it cost-prohibitive to close plants. Score one for Chapter 11 bankruptcy reorganization.

High costs. Reduce the number of salaried and hourly employees. Whoops. A UAW hourly worker was quoted as saying, "I think we've given enough." It reflects the union mood and position. Score two for Chapter 11.

Legacy costs. Reduce them big time. There's no chance for success if they continue. The costs are contractual with no sign that workers will give them up easily. Score three for Chapter 11.

Dealerships. State laws make it prohibitively costly to close dealers. Score four for reorganization.

Contractual commitments. Who signed these things? Nevermind. Score five.

Management. We do not need a "car czar," a position proposed by the House of Representatives to oversee the U.S. auto industry. We need functioning boards of directors and executive leadership.

Differing views

A good ERM analysis looks for opposing views. Some are:

Bankruptcy as an option. Mr. Wagoner is quoted as saying, "bankruptcy is not an option." He may be right. The word "option" implies other choices. If there are none, bankruptcy is not an option. It is an eventuality.

Protecting dealers. Michael Jackson is the CEO of AutoNation Inc., the largest U.S. retailer of cars. He says automakers have improved quality, reduced labor costs and rationalized production. Does this mean the companies need all the local dealers included in AutoNation?

Labor costs. The UAW view? "I think we've given enough."

Likelihood of change. Mr. Wagoner said he would not resign.

Effects of bankruptcy. CNW Marketing Research Inc. in Brandon, Ore., said 80% of car buyers would not purchase a car from a bankrupt company. Another survey said 51% would not buy a car from GM in any case.

Choose a strategy

Are we ready to choose? A Chapter 11 bankruptcy reorganization has negative effects offset by the possibility of fixing high costs, legacy costs, excessive number of dealerships and burdensome contractual commitments. A bailout without conditions offers short-term continued operations. Suddenly ERM comes into play.

We are not choosing between bankruptcy and a bailout. Our choice is between bankruptcy alone and a bailout contingent upon filing Chapter 11. This could be a useful insight in the discussions in Washington, Detroit and elsewhere.

John J. Hampton is the KPMG Professor of Business and Dean of the School of Professional and Continuing Studies and Graduate Business Programs at St. Peter's College in New Jersey.