it's the freewheel, shimano freewheels are bad. i've been riding one on my cross bike that does the same thing. it's not a huge issue.
spraying wd40(a penetrant) at a bike is almost always the wrong idea. you want to uninstall the freewheel, degrease it, and then repack it with GREASE, not oil.
why were you going to put car oil in a bike part? oil leaks right out and then doesn't do it's job. grease stays where you want it.
and you forgot the most important part of the story...
did the sideswiped lady died?