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Well, I was just trying the updated car demo from download page, and for my surprise, the car now gets deformed when hits something. I like that!

On friction events I check for the point of impact as well as speed and then move the vertex a little closer to the car origin. If you kept banging into things eventually the whole car would get folded into a point. The downside is that recalculating normals for proper lighting takes a while.
I have also reenabled the "broken axle" code which breaks the car if you run straight into things at full speed.