For AI not so much to do, actually. The AI of this game - also if better than GP2 is not so better -, in GP4 they had a big gap with previous titles,
However you can try to increase with gp3edit the performance of drivers in the carset, when you are exporting it to the game for a season (going in section "Performance"and click on "+" button of the Avarage , incresing 200-400 and then export to the game). This should make more hard to go away from drivers behind you and make them more aggressive.
For mechanical failures nothing to do. They are fixable in a pitstop. Also f fire from engine or damage suspensions. For physical damage, however, the pit stop is during much more time.
Anyway - particularly for electrical/gearbox problem - you could think they are substituting the steer wheel ?

For the Car Setup, you instead should but I would say, must make a setup. Each circuit, each track condition, each year each team/engine power you try to drive, needs a specific carsetup. There are some suggestions in the manual ( in italian, I know, I should translate them), there are also many setups "to work slightly on" into the folder gpsaves\setups,
but you need to have a your own setup, the challenge with AI is starting by that, trying to find out the right compromise in qualify and race to take the better performance on your opponents. Mind, that's is a part of this game funny :D
Enjoy!