That's a neat idea using the rotary encoder. The microcontroller based turn signal systems I have used just have a timer that counts down from 8-10 seconds, but suspends the timer anytime the brakes are activated (so you don't have to keep re-activating the turn signal if you're stopped at a traffic light).
I'm currently working on an Arduino based device for a hotrod as well. Mine is a gauge calibrator that allows you to make any sender work with any gauge, and also allows you to re-scale the output for irregular shaped fuel tanks.
After that I'm going to make an Arduino device to control a Vintage Air unit with the stock heater controls on a '53 Dodge.
Good luck with your project...