Sounds like a big job Firstly, I would go with the sub-folder approach (and by sub-folder, I mean inner page) as inner pages can bleed more authority from the root domain than sub-domains can. You'll be able to rank an inner page easier than a sub domain. I also think that the sub-domain approach is confusing for referring offline clients. Telling someone to go to newsite.mysite.com is more confusing than saying, go to mysite.com forward slash newsite.
As far as all of your local Seo is concerned just be sure that the relevant addresses are on the relevant pages. Don't let the address of the primary site pollute the other business pages where that address doesn't belong on.
Yes, the rankings have crashed but getting rid of those 302 redirects and changing them to 301's will have a significant impact. All you have to do is ensure that any old page redirects to the most relevant new page. Don't bother redirecting the old about us page to the new homepage, just redirect it to the new about-us page where it should redirect to.
The folder structure that you suggested for your new pages is fine, and I would go with that too. It's crucial that your new inner pages have the right address and phone number details on the front end. Ensure your Schema markup is also properly optimized. You want to make sure that when you run an inner page through the structured data testing tool that it's showing all of the correct Schema address and business details. As long as you pay close attention to this I think you should see minimal disruption to your Google local rankings.
I would also go to your Google local pages and put the right URL in the about us section (XYZ.com/auto-detailing). Make sure you re-upload the verification file again to the correct page (XYZ.com/auto-detailing).