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It is not cheaper to produce the small car. You're not quite understanding this.
The small car does not comply with the perverse CAFE standards. The big cars do comply. If they sell too many of the efficient, but non-compliant small cars, they get penalized. That penalty greatly increases the cost of producing the small, non-compliant car.
Without CAFE standards, your argument is reasonable and valid. With the asinine standards currently in place, your argument is completely irrelevant.
Do not sit there and tell me that it's impossible for a small car to comply with standards. That's ridiculous. Charge them extra for selling a big car so that making a big car is more expensive than creating a small car. You can't just say that this is impossible and deny the obvious solution, this is the clear solution.
Clearly, you do not understand the problem with how CAFE standards are currently implemented, because that is, indeed, the case. The mandated reductions on small cars are too much, and the mandated reductions on large cars are not enough. Manufacturers did the math, and the most feasible solution was to increase the size of cars. Cars are proportionally wider now than they used to be, to maximize their footprint and bump them up into larger classes.
Manufacturers will do anything they need to to avoid violating CAFE standards. With current regulations, that means "sell fewer small cars". If we try to solve the problem with taxes on large cars, manufacturers will simply increase the MSRP of small cars. Add a $5000 tax on large cars, and they will add $5000 to the sticker price on small cars, or otherwise ensuring the large car remains the better value.
Correct the regulations so that smaller, intrinsically efficient cars are feasible, while forcing manufacturers to go to extraordinary efforts to continue manufacturing large cars, and the problem solves itself.