There is some appeal to letting a company that has been so terribly mismanaged for decades declare Chapter 11 and keeping taxpayer money out of the equation. The problem is bankruptcy will necessarily mean a massive loss of jobs. For this reason a bailout is obviously preferable. The key though is to extract concessions from both GM and the UAW so that the rescue is not merely a handout.
Robert Reich has a few ideas on how a bailout should be structured,
In exchange for government aid, the Big Three's creditors, shareholders, and executives should be required to accept losses as large as they'd endure under chapter 11, and the UAW should agree to some across-the-board wage and benefit cuts. The resulting savings, combined with the bailout, should be enough to allow the Big Three to shift production to more fuel efficient cars while keeping almost all its current workforce employed. Ideally, major parts suppliers would adhere to the same conditions.
This is a start. I would also though insist on some "green" reforms - higher fuel efficiency standards, fast-tracking alternative fuel vehicles and heavy investment in fuel cells.
I've seen some cursory discussion of breaking up GM so that each individual line (Chevy, GMC, Pontiac etc) are left to stand or fail on their own. I'm not sure how realistic this really is but on the surface it seems like a solid idea. As was often said during the initial wave of Wall Street bailouts - if the company is too big too fail the it is simply too big to exist. I'm open to further evidence on this topic, so far I have seen little more than off hand comments along these lines.