Yeah, that's called inertia. In a real meritocracy, there'd be no inertia
Your definition of meritocracy is useless, because that's impossible. Even in the most perfect possible meritocracy, information only travels so fast (speed of light?), so not everybody can dump the erstwhile leader at the same instant. And of course, in reality, it takes much much longer. You don't know that GM's cars have suddenly become worthless for 5 or 6 years, because that's when they start breaking down.
Similarly, you don't know that Japanese cars have dramatically increased in quality because it took 20 years for people to start noticing "Hey there are all these 20 year old Toyota driving around, looking old and boxy, but still running great.. what's up."
How do you think you can get around the fact that measuring quality takes time? How does that fit into your definition of meritocracy having "no inertia?"
If (as you might contend) unions were dragging down the American automakers
No, you misunderstood, I was saying that the (surviving) American car companies showed skill in managing unions and politics. Perhaps that is the meritocracy... not who makes better cars, but who can survive in a hostile world. It takes some kind of skill to get a bailout, which is why Lehman Brothers isn't around, Countrywide isn't around, but Citibank is, Goldman is, etc.
Business isn't all about making the best product, in other words. The guy who makes a great product but can't keep up with his taxes, or mismanages labor and has all his workers go on strike, can still fail. That doesn't violate the concept of meritocracy because those are integral skills in business.