Unfortunately, in the USA, the regulations essentially just force manufacturers to put the engine into a huge body just so they fall under different (less-strict) emissions regulations. So banning small vehicles like this with okay gas-mileage (which I would consider "ok" to be in the 20's range), but we aren't improving the environment, since consumers are now just pushed to huge vehicles with gas mileage in the high teens.
I wonder if a fuel economy standard that ignores vehicle size would be viable. That would advantage the lightest, most aerodynamic cars and make big vehicles expensive. Some people need big vehicles, but increasing costs for those people might be an acceptable tradeoff for making the average car smaller with the inherent benefits to fuel economy and reduced danger to other road users.
So many regulations could be streamlined and IMO made much more effective if they were just designed around the simplest way to make people pay for their negative externalities. Carbon taxes and congestion pricing are great examples of this. Instead we have Byzantine regulations like these with unintended consequences like conditioning everyone into thinking they need a 5000lb monster truck.
Another thing to add to the list of things to love about the R35.