GM offered him $1million for it, with the explicit promise that they'd sweep it under the rug and never develop it further... being ethical, my grandfather told them to stuff it, and ended up never selling the design.
This is obviously not true. Car companies have no vested interest in reducing fuel economy. In 1984 GM was struggling to meet consumer demand for the big, comfortable cars Americans want, while also meeting ever-stricter emissions and fuel economy rules. Since GM really didn't know how to make cars that were both small and good, they were stuck with a stable of large, underpowered cars and small, unpopular ones, and losing market share every year. A technology like you describe would have allowed them to leapfrog the problem altogether; instead of sweeping the technology under the rug, they would have bought the exclusive rights and dominated the market.
Now, maybe if you claimed your grandfather had tried to sell it to Exxon, it might be more credible.