Auto Bailout 'Absolutely' Right Decision: Nardelli

The U.S. government's controversial decision to rescue failing auto manufacturers was "absolutely' the correct decision, the former head of Chrysler old CNBC Wednesday, arguing that the sector is on a road to recovery.

Robert Nardelli, founder of investment and consulting firm XLR-8 and former chief of Chrysler told CNBC's "Closing Bell" that given the severity of the 2008 financial crisis, the sector needed financial support.

"With housing in a downward spiral, if we lost the auto industry…it would have been devastating," the former Home Depot CEO said. "I do think [the government] made absolutely the right decision."

Although the health of Detroit's Big Three automakers is still being used as a political football, he added: "Are we roaring back? No…but I'm encouraged with the auto industry, both with the cost effectiveness and the efficiencies and the durability." (Read more: Auto Bailout Ultimately Steers Obama to Victory.)

Nardelli said his former unit is now contributing so substantially to its parent company, Fiat, that "Chrysler is now bailing Fiat out, if you look at the earnings of those two companies."

He added that China was slowing, but its economy was still "pretty focused and pretty robust."