Yeah Hollywood is extremely competitive.
You forget Arnold was Mr Universe before he became an actor. It's like supermodels, you can get your foot in the door just from the physical, acting talent secondary.
And he was well known back in the 70s/early 80s, from accounts I've read. From Mr Universe title, Conan (Conan was a big hit, spawning an entire genre of imitators), Pumping Iron, plus Terminator was a low budget movie.
I'm not saying star power makes a film good, but that's Hollywood accounting. You're only as good as your last box office. That's why Shane Black got to direct The Predator, because Iron Man 3 made a billion dollars, not because of his 'talent'.