Exposed Filters in Entity Type Reference I have used and entity reference field in my content type Showrooms. The field references to another content type Cars. 

Cars has a category field attached to it such as audi, mercedes, bmw etc. Each car has once category only. Now what i want is that the user can filter the cars on category. I have used a reference field, but it lists all the cars. I want the user to be able to filter it. 

Should work some thing like this, the user first chooses the category and then from the other drop down should choose a car and that car should be referenced.
you can put your car categories in a taxomomy list and then use Hierarchical Select to filter the way you asked. quite straightforward.