Most of European cities and buildings are extremely old – most of them date back the middle Ages or to the Roman Empire, or maybe even older – and their city plans have been designed long before the invention of the automobile. They have been designed with pedestrians and ox carts on mind, and we sure aren’t going to tear them down because of automobiles. They rather build underground railways and trams.
Conversely, most American cities are new, often less than 150 years, and have been designed on square grids with automobiles on mind, and many have been redeveloped (read: historical buildings pulled down) to accommodate cars.
The result is that you can get anywhere with public transportation. Trains and buses go everywhere, and trams and underground railways can be found in almost any large cities. When I go to the downtown Helsinki, I usually take the underground – I have a five minutes’ walk to the station.
To a European family, they usually have more than 2 cars , (a small private car and a van). The van is for transporting a lot of stuff from place A to place B (like the gear of our yacht from storage to the boat herself) and to go to rock festivals, air shows and camping (you can sleep inside). The car is for going anywhere 30+ kilometers off where public transportation would be unfeasible.
You simply do not need a car to get anywhere in the Central Europe. Finland is more like the United States in this respect – our distances are long, and a car is a nice to have thing. Not a must.
The other reasons why Europeans drive smaller cars that people in the US is probably lack of parking space. Most European cities are densely built and have narrower streets than US cities. This results in a lack of parking space. Normally, parking is provided parallel to the sides of the street, often the spaces are unmarked so that an available space can be of any length, depending on what the cars in front and behind have left.
If you find a parking space that is 4.5 m long, but your car is 5 m long, you won’t be able to park it there no matter how much you try. If your car is 4 m long, then you will be able to park it. This means that the shorter the car, the more chances to park you will find. That is why in European cities you can see many really short cars as the length of 2.7m, they can park where even subcompact cars can’t park, let alone the American behemoths.
So this is the main reason why Europeans drive smaller cars than Americans, as they live more packed together. This is a problem for cars, but can be a blessing for people: I can walk out of my front door and find everything I need from a fresh food market to a bank within a 10 minutes’ walk. This wouldn’t have been possible if the city had allowed more space for car parking, because doing so would have pushed all urban functions away one from another. So living in a densely developed city is a choice which brings advantages and disadvantages. I personally prefer to have everything close and not needing a car to do most of my errands, than having wide roads and plenty of parking and having to use a car for my daily needs.
As for average European cars being cheaper than US ones, that’s for a combination of reasons. Firstly, smaller cars are cheaper than big cars. This I think does not require much explanation. European cars have smaller engines than US cars because they are lighter, and can reach the same performance with less horsepower, but also because Europeans don’t drive such long distances as Americans. A typical commute by car in an European city is in the 10–30 km range (6–20 miles) and a long inter-city trip can be 100–300 km (60–200 miles). So an average European doesn’t need a big car with a big engine. Also, fuel price is much higher in Europe than in the USA so a big gas-guzzling engine is not convenient unless you really need one, or love to drive one. Also road tax is generally higher in Europe than in the USA and in some Countries there’s a “supertax” that applies to the most powerful cars to deter their use.
And this leads to another reason for why average cars in Europe are cheaper than in the USA: the average income of an EU citizen is little above half of that of an US citizen so also family expenditure tends to be lower. A car is an expensive item and a big car is an even more expensive one. If a small car can do well most of what a big car does (and as a bonus, it’s easier to park) then a typical European family will do without the dream car and settle for a smaller one.