Well, smaller cars are less of an issue on every metric. They take away less space...
Unless they're kei cars in an area with special zoning laws mandating half-size parking spaces for them, all cars take up the same amount of space at rest: one parking space each.
In motion, the space cars take up is dominated by following distance, not the length of the vehicle itself, so small cars don't meaningfully increase the capacity of the road either.
In other words, from an urban design/engineering perspective, all cars are effectively the same size. The only things that get considered separately are the really big vehicles, like firetrucks, buses, and 18-wheelers.
As for the other aspects: yes, small cars are better, but it's a marginal gain rather than a transformational one. In this space, of all places, I prefer to focus on those transformational gains rather than preemptively compromising. Remember, a radical flank is always necessary in order to make the moderate position look moderate. You can't shift the Overton window without demanding more than you expect to get.