Cars replaced horses and carriages, not bicycles. Look at old photos of cities: do you see streets crowded with bicycles or with buggies? Reality is that people need to transport things besides their own bodies, including other people.
Reality is also that humans generally prefer having some room and space. Crowding people together CAUSES problems. If you've ever lived in an apartment building, you know this.
But it can't be any of that new technology enabling higher standards of living. No, it must have been an evil conspiracy. We should all ride bikes and live stacked on top of each other.
It's probably the result of the lobbying power of a conglomerate of automotive stakeholders, formed in the 20s/30s. [1]
[1]http://en.wikipedia.org/wiki/Automotive_city#The_road_lobby_...