I believe that it happened in places, but even smaller cities like my home town of Madison WI used to have rail systems, and it's hard to imagine it being worthwhile to buy them all out. To what degree was it simply shifting markets rather than nefarious anti-competitive collusion?
First, there were only three municipal rail systems in the US. All the others were privately owned until the 1970s.
As for the conspiracy theory, virtually no truth to that at all, and "the auto industry" never had any involvement at all with Madison, whose streetcar service ended in 1935, a year before National City Lines got going. An ice storm that brought down much of the overhead wiring was the final blow.
In past posts, I've tried to lay to rest the conspiracy theory and to explain what really happened to streetcars.