The general cost of a vehicle has dropped over the generations when compared to the average income. Cars now have more features that ever before which masks the drop in price over time. It means more people can afford more of car than people could in the past. The options of owning something bigger is easier to afford which means people can consider it.
The price for small City Cars is not all that low. The most basic Fiat 500 starts at $15,090, the bottom end Smart Car is $15,895. At the same a new minivan is available for $22,000. For that extra $6,000 to $7,000 you can buy a vehicle that can do a lot more for you.
When we think of the sort of vehicle that is needed to achieve what we want we think about all the tasks we want to do. In most cases we have to make one car work for a host of purposes and this means a larger vehicle than we need to have 90% of the time. In the past the cost of an SUV or pickup would not have been reasonable for most people but that is no longer the case and therefore they are serious options when people consider what vehicle they wish to buy.
If you have a family with three kids it is barely realistic to work with a five seat sedan. Anything that seats less than five is not going to work in any case. If you want to go on a trip and carry all your gear and drive 500 to 1,000 km on you trip, three kids kids sitting in one row of seats starts to fall apart. Most people would move to getting a minivan or a crew cab pick up.
When you should for a family of five at a big box store you need enough space to carry all that you purchased. Buying groceries at Costco will save you a lot of money which then oft sets the cost of the larger vehicle.
If you own any sort of acreage you ideally want to be able to buy yard and garden stuff for it and haul away your waste, this means you are looking at a pick up.
If you like to go outdoors or go up skiing you will be predisposed towards a four wheel drive vehicle
Most families really would prefer to operate with one vehicle which means the main vehicle has to be versatile to do a lot of things.
What this all means is that for a lot of people their primary vehicle is a large one. If families have a two or more cars it is the second car that can be something small like a Fiat 500.
An average minivan will use about 1000 litres more fuel than a small car in a year. That is an added cost of about $1300 a year or a bit more than $100 a month. This difference in cost is about the same as getting a Starbucks coffee everyday. If the price of gasoline were to go to $2.50 a litre, this is still only about $2500 a year more in fuel to drive a minivan than a City Car. The bigger impact is the general increase in the price of fuel but even then the cost for a minivan's fuel in a year is under $7,000 a year.
As long as the cost of small vehicles is not dramatically lower than large ones, or as long as gasoline prices remain so low, there is little reason to expect people to buy smaller cars.