- After WW2 everyone was broke except the Americans. Most people couldn’t afford a big gas guzzler. Hence focus on fuel economy. And that was before any emission standard was practiced.
- Smaller engine means lower weight, which also benefits handling, which is important especially in Europe with their windy country roads.
- European and Japanese cars are made smaller also because their roads are narrower. Can’t fit a big engine into a small car that easily.
- A lot of modern American cars also have small engines.