How many customers are using Google Password Manager? How much revenue does it generate? What would it cost to add E2EE? How would it affect the UX? How much revenue would it generate? What projects would have to be de-prioritized to fund this work?
I agree, a password manager without E2EE is unusable in my eyes. However, I can also understand the institutional reasons this might be the case. I don't think it reflects an organizational aversion to E2EE.
Google Password Manager does in fact have E2EE. It's quite straightforward to enable. Your interlocutor is complaining that it's not the default, which I'm quite sure is a deliberate decision made on the grounds that the typical user, the one for whom the default matters because they won't tweak their settings, needs workable account recovery more than they need defense against the specific kinds of security threats that make E2EE relevant.
LastPass, designed for regular users and one of the most popular password managers, had a breach of user vaults. If they hadn't implemented E2EE then it would have been more devastating than it was (crypto wallets were found from vaults with weak master passwords).