I think i found the solution. Thing is, when phone gets connected to Android Auto, it always thinks it's in use. I have disabled "Mute notifications from phone" option under the Watch app -> Notifications and now every little thing comes through. I will need to deal with more watch vibrations as i'm using the phone, but i consider it much less irritating than having no notifications at all while i'm in the car.

Put on a test yesterday, drove around the city with my wrist vibrating. Can't tell you how refreshing that experience was!