You can do it in iTunes and then copy the mp3 files to the stick.
iTunes: How to convert a song to a different file format - http://support.apple.com/kb/HT1550 - including information about different formats and discussion about compression.
Topic: Need to convert mp4 to mp3 - Zevoneer's post on converting songs - http://discussions.apple.com/message.jspa?messageID=9244740
Just note you'll end up with a bunch of mp3 duplicates in your library.
You can highlight the files in iTunes, then drag them to the flash drive in Finder.
To get them to play in specific order or as a playlist you will have to refer to the player's manual as almost each car has different ways to do that.