1. Just because meritocracy is real doesn't mean changes happen instantly.
Yeah, that's called inertia. In a real meritocracy, there'd be no inertia: people would dump the underperformer as soon as something better is available. But that's not what happened with the American car companies: they hung on for a very long time because of inertia, and as a result they're still here now. In a true meritocracy, they would have mostly disappeared in the early 80s, when Japanese cars had eclipsed them in every way, except probably for the full-size truck market (where Japanese makers didn't actually compete until later). In a mostly-meritocratic-system, with some inertia, the American carmakers would have died out by the early 90s. It wasn't until the late 2000s when the Americans really finally caught up.
2. Maybe their meritocratic skill is in navigating politics and unions, not car making.
Well the Japanese had far better cars on the market for decades, and didn't seem to have problems with unions or politics. Again, inertia, not meritocracy. If (as you might contend) unions were dragging down the American automakers, then in a true meritocracy they should have gone out of business in the 80s because of this. Instead, inertia kept them afloat, despite their problems with unions. Remember, this is a business: they make cars, and sell them to the general public. In a meritocratic market, the business with the superior product and customer service is the one which is the most profitable, and others go out of business. That's obviously not what happened with the American automakers; their cars in the 70s-90s were utter shit. And not only were they shit, but there were far superior alternatives on the market, at competitive prices. In a meritocracy, they should have gone under. It's that simple. Ergo, there's no meritocracy, just a huge amount of inertia (plus a big bailout in the late 2000s).