>We've already hit the wall regarding how much energy we can squeeze out of a unit of liquid fuel (most of the energy gets wasted as heat).
far from it. Just for example - the gas turbine reaches 50+% efficiency and in sequence hybrids there is no limitations which killed gas turbine car 50 years ago. Of course gas turbine is expensive, so we aren't going this way.
>Note the VW emissions scandal.
A BigCo stuck in old ways tells nothing about what is technologically possible. I'd say you can't do worse than current typical gas or diesel engine which basically hasn't changed for 100+ years :) Even well known Atkinson cycle was implemented en-mass only recently. Once i file my patents, i'll tell you in more details about other efficient designs and improvements :)
Without the efforts like CAFE and CA emission/efficiency requirements, we'd still be stuck with 20% efficient carburetor gas ICE. The increase of the regulatory pressure creates market opportunity for efficient designs, and you'll see what will come when CAFE hits 50mpg :)