They are melted down and made into new and more efficient cars...
"Despite their complex construction, cars are one of today's most recycled commodities. Whole automobiles are simply not landfilled. The reason why is that the steel and iron components, which make up nearly 65 percent of the average vehicle, are too valuable. Instead, virtually all of the steel and iron are recovered for reuse and recycling along with most of the other metals, such as aluminum, copper and lead. As a result, the recycling rate averages about 100 percent each year. "
- that's what happens to the cars that are thrown away.
There are already alternatives and conversions available. People aren't flocking to them. Guess why? Why haven't you upgraded yet?
The second it becomes cost efficient to retrofit 100's of millions of cars, you will see it happen. But spending 3000+ to put a 1.3l economy motor in your 3 - 4000 pound vehicle that is already 3 - 8 years old isn't worth it. And how cheap would it be to power your vehicle from vegetable oil (etc) if suddenly everyone switched to that?
To expect GM or Toyota to recall their vehicles to upgrade them for free is wishful thinking. But even if they DID, they would still pass the costs on to the consumer... nothing is free.