Technology

I would argue that it is both. You are certainly correct that manufacturers have many incentives.

But to deny that many, many Americans will openly tell you they want a larger car to feel safe, a big ole impractical truck to signal masculinity, stuff like that... I dont really see how thats a tenable position.

People car shame other people all the fucking time.

"Oh you drive a hybrid, pff, good luck when you need to haul 3 tons up a mountain!"

"You know, if you wanted your kids to be really safe, youve got to get an (insert favorite car company's latest SUV model), they the best safety record."

Now unless you want to argue that ultimately these consumer preferences were ultimately created by the marketing campaigns of manufacturers years ago and today, amd thus all of that counts as 'the manufacturers interest', then I mean well sure yes I agree in that sense, but it seems like that is not what you are saying.

To your last paragraph, I would appreciate it if you could walk me through how removing various efficiency requirements on standard and compact and subcompacts would lead them to becoming more efficient.

I can see that argument working in a relative sense, if you mean that newer such cars post-regulatory removal/relaxation would be more efficient than newer larger cars, SUVs and trucks, but not in an absolute sense, as in significantly more efficient than the previously built models of smaller cars they are no longer producing.

To me it seems the only way to get a more efficient, market viable car is to just switch to a hybrid version or close analog of a gas only sedan or compact or subcompact or hatchback or w/e.

But that will be a hard pill to swallow for especially the truck crowd, which has largely spent the last two decades loudly telling us that hybrid and electrical vehicles are for f*gs and liberal antifa communists, publicly and privately mocking and berating any one who even considers purchasing one.