[malfist]

> regulations are written prevents anyone from manufacturing something small and efficient

This isn't true. The regulations set a minimum allowed MPG is based on size. Manufacturers have decided it's cheaper/easier to build bigger vehicles with worse MPG, than build the previous size with better MPG.

[TexanFeller]

Manufacturers are just following the incentives created by the regulations. Government policies very frequently backfire and create perverse incentives and unintended consequences, hilariously illustrated by the Cobra Effect and the Great Hanoi Rat Massacre.