I think the increase in size of cars is due to crash test regulations (bigger cars perform better), emmission regulations (that require more parts) and room to fit modern electronics and other systems. It has nothing to do with size of passengers imo. A smaller car with all these systems will be a lot more expensive and it won't perform as well in crash tests.

Having said that modern cars are way way safer than 80s cars for example so all this work/new systems and increase in size has paid off.

Not sure why though I still prefer older cars.