Keith,
I think the issue that is being overlooked is that the TARP bill itself was not intended (or presented) as a fund to bail out the auto industry. It was passed as an emergency measure to prevent the collapse of banking entities that were "...too big to fail...".

As a lame duck president, I believe Pres. Bush simply was not willing to fight any significant political battles and acceeded to pressure from labor and in portions of Congress to modify the useage of TARP to include the auto industry. The argument was that bankruptcy would be a disaster, which was hyperbole on its face; the intent of that argument was to provide cover from a public that was just starting to ask questions about the TARP plan itself.