Sandy's last dream.

He drowned trying to save her.

"Is this the end?" As they emerge from the sea.

"No baby we just met"

Ok so if this was Sandy's hallucination as she was dying then outside of Danny and maybe Frenchie(who knew the family) nobody else in the film is 'real'... These are all ideas of what she feels are American teens... Rizo... Marty.. They are are made up, from stories that Danny or Frenchie made have told her... Trippy... And take it a step further Grease 2... How could that be real? Or maybe he is there because he came to her funeral... lol

I'm thinking the whole film was Sandy's dream - being an Aussie outsider, hooking up with the main guy, etc..
The flying car is the key.

He dies trying to save her. The whole movie is both of their dying moments in their head. At the end of the movie they both drive up into the sky in that car.