Gunners fans have become disillusioned with Wenger’s tenure in recent years and the loss at the Etihad was their fourth in the league this season.
And Dixon, who won four league titles during his spell at Arsenal, cannot see his old side improving under the Frenchman.
“I honestly think they’re unfixable by Arsene,” he said on BBC Five Live.
“What he’s got there, he’s created an environment that doesn’t really know what they’re doing without the ball.
“They can lose to anybody on their day defensively. That summed it up at the weekend against Man City.”
Wenger was criticised for dropping summer signing Alexandre Lacazette, who came on to pull one back against City.
Pep Guardiola’s side won comfortably in the end and Dixon was highly critical of Wenger for adopting tactics that don’t suit his players.
He added: “They are not a pressing side. They do it now and again, they did it against Chelsea .
“They’ll get it right and they played really well against Chelsea in the cup final and in the league.
“And then they go and perform like they did against Watford and then you see them try and press Man City, one of the best passing sides in the league.
“Where one’s gong, one’s staying – how is that allowed to happen?
“If you’re not a pressing side you have to press for months and years at a time in order to get it right.
“It’s really difficult, it’s not just a case of going and all rush to the ball.”
Arsenal are currently sixth in the Premier League, 12 points behind leaders City.
They return to action after the international break as they host rivals Tottenham at the Emirates.