I am too young to have lived it, but I have read about the Malaise era. To me, it's just when American car manufacturers had to start competing globally, and couldn't, so kept making the same giant V8's, but with 160 hp.

More wouldn't than couldn't.

The management was mostly of the opinion that gas prices would come down eventually, so there was little interest initially in making anything more efficient. Also, since small, efficient, cheap cars had miniscule or negative margins, there was a belief that competing in that market was optional.