(Jeff Kowalsky/Bloomberg via Getty Images)

At Nicky D's Coney Island in Warren, Mich., across the street from a Chrysler truck plant, co-owner Diana Dedvuka has seen her bustling diner come back from a near-death experience.

"People are working.  They're spending more money. Customers seem to be happier," she said.

In 2009, the family-owned restaurant struggled to stay open as Chrysler and General Motors teetered on the brink of collapse.

"Our business went down 40percent," Dedvuka, the daughter of a retired auto worker, told ABC News. "Driving to work, you would see these big (auto) plants completely empty. It would give you chills."

Now, Dedvuka says, customers who once feared losing their jobs are complaining about working too much overtime.

As Republicans Rick Santorum and Newt Gingrich scramble to overtake native son Mitt Romney in the Michigan primary, scheduled for Feb. 28, the state's economy appears to be climbing out of a deep, dark hole.

"Since the depths of the recession, we've seen manufacturing stabilize and start to come back," said Robert Dye, chief economist for Comerica Bank. "What we've seen in the auto industry lately has been good news for the state."

In fact, it's been very good news:  Tax revenues have jumped so dramatically that Michigan now enjoys a $457 million budget surplus.

The auto industry is driving the nascent recovery in Michigan, where manufacturing accounts for more than 20 percent of the state's economy.  Indeed, U.S. car sales are revving up at the fastest rate in nearly four years, rising 11 percent in January over a year ago.  The state's unemployment rate, while still higher than the national average,has dropped from 12.6 percent, in March 2009, to 9.3 percent in December.

The improving economy, while far from robust, has breathed real life into many small and medium sized companies that supply the auto industry.   At Eifel, Inc., a family business that provides tooling and molds for automakers,  new orders are pouring in.

"I haven't seen it this busy in almost 10 years," said owner Richard Hecker.

Hecker said he is considering adding a second shift to his 16-employee work force, but he cannot find enough qualified workers to fill the openings.

"It's just tough to find skilled help right now," he said.

President Obama, in a Jan. 27 visit to Ann Arbor, took credit for the auto resurgence while needling his Republican rivals:  "The American auto industry was on the verge of collapse. And some politicians were willing to let it just die. We said no. We believe in the workers of this state."

But the political skirmish over Chrysler's Super Bowl ad - the Clint Eastwood "Halftime in America" production - reflects the deep divisions remaining over the decision by the Bush and Obama administrations to invest billions in a U.S. auto industry that had repeatedly failed to right itself.  White House aides tweeted their enthusiasm for the commercial; former Bush aide Karl Rove said he was "offended" by the ad.

The Republican candidates all opposed the bailout, including Romney.  The son of former American Motors president and Michigan governor George Romney wrote an article in the New York Times, entitled "Let Detroit Go Bankrupt." His words may come back to haunt him.

"If (automakers) get the bailout … you can kiss the American automotive industry goodbye," he wrote, arguing in favor of a "managed bankruptcy" in which the government would guarantee loans, but not provide financing. He reiterated his position in an Op-Ed published in the Detroit News Tuesday. And he paired it with a new TV ad that shows him driving around Detroit neighborhoods.

"President Obama did all the things that liberals have wanted to do for years and still, people in Detroit are distressed," he says in the ad.

The auto bailout was actually initiated by former President George W. Bush. He defended the move last weekend in remarks before the National Automobile Dealer's Association.

"I didn't want there to be 21 percent unemployment," Bush said.

Former Obama administration car czar Steven Rattner told ABC News a plan like Romney's was doomed because, during the 2008-09 credit crisis, only the federal government "had the means or will" to rescue Detroit.  But Hecker, the parts supplier, remains uneasy about the government involvement. He said he believes private  investors would have scooped up G.M. and Chrysler, even "if it was only pennies on the dollar."

But in Michigan, the auto industry is so vital to the state's economy that even Republican Gov. Rick Snyder says not bailing it out "would have had a devastating impact on the economy."

Economist Robert Dye is even more blunt:  "It would have been catastrophic for the state of Michigan and for the U.S. economy as well."

The government help came at a cost; Rattner estimates taxpayers may never be repaid $14 billion of the Treasury's original $82 billion investment.

Romney's position on the bailout is unlikely to hurt him in the Republican primary, according to Bill  Ballenger, editor of the non-partisan "Inside Michigan Politics." But Ballenger said if Romney is the eventual nominee, "it will cause him problems in the general election."  (In the latest Detroit Press/WXYZ-TV poll, Obama leads Romney 48 percent to 40 percent in Michigan.)

At Nicky D's, Dedvuka said she is convinced that the Bush and Obama administrations made the right choice in propping up GM and Chrysler.

"That's what we pay our taxes for," she said. "If we see our people hurting, don't we want to help them?"