There is not actually survivorship bias in the DJIA, because changes to its composition are not retroactive. If an index member goes bankrupt, it will absolutely bring the index level down substantially.
That is if they are high flying one day, and bankrupt the next. What usually happens is that they slowly sink in size until they are excluded from the index, and some other up-and-coming company is included. It's not common for a company to go bankrupt and be delisted, but it is common for companies to sink lower and be removed, and then perform very badly from then on as index funds sell them down.
So you're correct in that bad performance by a firm in the DJIA will affect the index, however, really bad performance by a company will not be completely reflected in the index, only the first part of their decline. And that will be somewhat mitigated by the inclusion of their replacement, which is usually a growing company.
