Apparently Android Auto can either use the GPS in the connected head unit or the GPS in the mobile device itself. As I understand, Android Auto will always prefer to use the GPS in the connected head unit. (which makes sense: typically has better antenna reception, doesn't drain the mobile unit's battery, etc).
How can I tell which one is being used ?
When the phone is in the car, I put it in "The Grotto" below the climate control and connect it via USB. I call it "The Grotto" because it is really deep and I'm thinking there's no way a GPS can reach in there. Yet my Android Auto works fine and never loses GPS signal. So something else must be going on.