Why are Google and other companies trying to develop this technology if all it takes is a single fatal crash, and therefore a single lawsuit? It should be in their rational self-interest to avoid any contact with this technology. It would be lighting on money on fire.
This is not the strongest example, but automobile companies have ignored fatality inducing problems, yet the practice didn't end their business. There is likely enough profit in the pursuit to deal with such issues. These lawsuits are slow-moving enough that there would be room to maneuver.
The greatest threat, in my opinion, is over-reacting politicians passing laws due to a shock in public opinion on the safety of the cars. The shock could be legitimate, due to reckless implementation, or just due to an unpreventable accident.
There's also the vaccine industry. Some vaccinations result in severe adverse reactions in a handful of people. But the public health benefit is so vast that the government has stepped in to shield vaccine makers from the lawsuits.
The vaccine point suggests to me that it's not so black and white about if self-driving cars are doomed. If the public safety benefit of self-driving cars becomes so great, then maybe the government will be pressured to ensure they're here to stay. I think there will definitely need to be changes in the law to accommodate this tech, but it's not impossible.
In any case, I expect the incipient googlecars will have capacitive sensors on the steering wheel, requiring that your fingerprints are on the controls.