When you connect your phone to your stereo via the headphone jack, the phone remains in "handset" mode. It routes the incoming audio from the phone to the stereo speakers, but the caller is still getting your voice from the phone's onboard mic. It may just be that your phone is too far away from you or it is too noisy in your car. Test it out just sitting in your car and moving the phone closer to you to see if it helps. If not, then there may be a problem with your phone.
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