There are a lot of reasons, as other commenters have pointed out, including all the existing capital that would have to be retooled or scraped.
However, I don't think you can overlook the damage the bailouts did. The Chrystler bailout in 1980 and the more recent GM bailout preserved the existing Detroit power structure. All of that talented labor pool and capital that would have been set free via liquidation instead was allowed to stay together. These companies didn't innovate because they didn't have to.
I'm not saying that I agree with bailing out car companies, nor the 1980 bailout particularly, but the notion of "setting free" talented labor pool is a little absurd in the case of the 2008 financial meltdown. It wasn't GMs fault that the entire financial sector that customers require to purchase their products was detonated by AAA rated products that were not at all safe. It was the government's fault for not regulating the banks, as well as the rating firms for not evaluating them.
The engineers would have been let go into a horrifically bad labor market where demand for mechanical engineers is zero due to expensive and unavailable credit.
However, I don't think you can overlook the damage the bailouts did. The Chrystler bailout in 1980 and the more recent GM bailout preserved the existing Detroit power structure. All of that talented labor pool and capital that would have been set free via liquidation instead was allowed to stay together. These companies didn't innovate because they didn't have to.