Another reason why tiny cars are popular are because of how narrow some of the streets that you have to drive through are. Japanese streets weren't designed with cars in mind. They are usually the size of walkways. Good luck trying to drive a Lincoln Navigator!
Parking is also hideous. It's is almost impossible to find parking anywhere. At the hospital I work at, has no real designation for staff parking. Just customer parking... Makes no sense to me, I guess they all expect us to teleport or walk to work or something. Bicycle parking is also a pain in the butt. I got chewed out for parking my bike in front of a fire exit and it was moved to another location... How was I supposed to know where the fire exits are? I don't read Kanji.
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Little Car
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Here is a link to a funny website that talks about Japanese cars and gimmicks used to lure customers to purchase these tiny little beasts. Such as the "hood scoop" the size of a bar of soap.
http://www.sushicam.com/2004/December/041221/041221.php
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