Bankruptcy
The gov't ownership stake in the auto companies wouldn't be a no strings handout - there would be strict conditions calling for cost cutting, further closures of inefficent plants and product lines, and much better management for the long-term viability of the companies, and certainly the development of more fuel efficient vehicles.
Simple bankruptcy proceedings or a buyout would accomplish most of these things, too. These companies and their employees aren't going to disappear any more than Wachovia did. And it would happen without idiots in Washington who know less about business than they do about quantum physics telling the companies how to run things.