I am by no means a historian and this isn't even really an area of interest of mine but I just finished a course on the subject of urban planning so I'll try to do my best. Note that most of my knowledge comes from the Los Angeles Area but the themes are similar to a lot of places.

In the late 19th and early 20th century street cars were immensely successful. In many places they were the primary means of transportation for many commuters. However, as the automobile began to spread the problem of traffic became significantly more complicated. The widespread adoption of the automobile by the 1920s greatly taxed city streets. In the the 1910s and 20s the problem of mixing different types of traffic on streets, particularly in the central business districts of cities became incredibly problematic. In that time you could easily have street cars, automobiles and horse drawn trucks on the same street. It was essentially chaos as seen in this picture from downtown LA in 1920. Horse drawn trucks were still used to transport heavy loads and make delivery to businesses, commuters were boarding street cars and people were also driving their own automobiles on streets that were never designed to handle traffic that way. A number of urban planners like Fredrick Law Olmstead Jr. (son of the Fredrick Law Olmstead who is considered to be the father of American landscape architecture) set out to try and the solve the problem which Olmstead Jr. termed "the promiscuous mixings of different types of traffic" in his proposal A Major Traffic Street Plan for Los Angeles.

The solution to problem was rather easy on paper but difficult in execution. Simply grade separate automobiles and street cars (or provide street cars dedicated rights of way), widen the streets, reduce/eliminate curbside parking in central business districts, and limit loading and unloading to alleyways. Unfortunately grade separation is rather expensive and the depression cut into street car revenues. In LA the street car system struggled and while many aspects of Olmstead's proposed improvements were eventually implemented, grade separation of light rail systems wasn't a priority especially at a time when light rails were struggling to generate revenue. Gradually, streets were widened, intersections were improved but the street cars were essentially neglected and gradually phased out as buses grew cheaper. By the late 40s and 50s Los Angeles had decided to continue building out it's freeway infrastructure and never opted to replace the light-rail or build a substantial heavy rail subway system. In the end it really came down to the fact that people liked cars and grade separation is costly and heavy rail system are even more costly. The money and political will power didn't exist in a lot of places to modernize light rail systems so they simply starting dying out.

Edit: Grammar and wording. Edit 2: also note I used light rail and street car interchangeably but in modern use some people differentiate between the two though he difference are subtle. I've essentially used light-rail/street car to mean anything not heavy rail (like a subway or commuter rail).

Main Sources:

Reyner Banham, Los Angeles

Allen John Scott, The City: Los Angeles and Urban Theory at the End of the Twentieth Century

Olmsted, Bartholomew, and Harry Cheney, “A Major Street Plan.”

Transportation and Engineering Board of Los Angeles, “A Transit Program Los Angele Metropolitan Area.”

I tried to avoid Mike Davis since he is rather radical, and has a tendency to play loose with facts, but if you're interested in urbanism, particularly in the Los Angeles area the City of Quartz: Excavating the Future in Los Angeles, and the Ecology of Fear: Los Angeles and the Imagination of Disaster are the two works that are most apart of the popular conscience, just be aware that he is writing with a very strong socialist slant. If you're into architecture Reyner Banham's Los Angeles is also very popular but is rather dated at this point.

In short, buses proved more efficient and much cheaper for providing public transit service, especially as ridership fell and traffic congestion grew.

The McGraw Electric Railway Directory for 1924 lists 955 electric railways in the United States. By 1975 there were only seven streetcar cities left in the US: Boston, Newark, Philadelphia, Pittsburgh, Cleveland, New Orleans, and San Francisco. The Census of Electrical Industries provides some useful numbers for how steep the decline was in the 1930s. The number of street railway companies was 963 in 1927, 706 in 1932, and 478 in 1937. Streetcar companies were often cross-subsidized by real estate ventures, or had the backing of electric utilities. When the 1935 Public Utilities Holding Act forced electric utilities to divest their transit franchises, the new owners desperately needed to cut costs, and that was often the last straw for the streetcars.

The motor bus had proved practical in the 1920s, and just as the horsecar had given way to the electric streetcar, transit companies began using them for new route extensions, or to replace streetcars on lines with modest ridership. Besides the costs of maintaining overhead wires, tracks, and (in many cities) the streets they ran on, streetcars in big cities often had double the labor costs. Most streetcars were run with conductors, and unions often made it difficult to change that. But a new company running new buses could put one-man operation into place, saving huge amounts. A 1950 book from the Public Administration Service called Transit Modernization and Street Traffic Control is extremely thorough in explaining why virtually all streetcar systems should be converted to buses. Of course, Bloomington followed this course, and then in the 1990s what’s now called Connect Transit was able to redesign its network to better serve destinations such as Eastland Mall, Carle Clinic, and State Farm. It’s incredibly expensive to take up and move streetcar tracks.

The idea of municipal ownership or even assistance to transit was decades in the future (except in San Francisco, Pierre, S.D., and Monroe, La.), and came only in the 1970s in most places. Small-city traction companies faced worn-out equipment, worn-out track, and (sometimes) labor contracts requiring two-man operation. In one fell swoop, they could take care of all those burdens by substituting one-man buses. In virtually every case, the public hailed the new buses for the smoother ride and quieter operation they offered. Buses were also more flexible for getting through and around traffic, which had been growing rapidly, even during the Depression. All those cars made it harder for streetcars to get through, and they made it dangerous for passengers to board in the middle of the street. Buses could pull to the curb.

The growth in auto ownership, of course, meant fewer and fewer people were riding streetcars in the first place:

Year	Personal Vehicle Share	Public Vehicle Share
1900	0%	100%
1905	1%	99%
1910	6%	94%
1915	21%	79%
1920	50%	50%
1925	71%	29%
1930	79%	21%
1935	86%	14%
1940	86%	14%
1945	65%	35%
1950	82%	18%
1955	90%	10%
1960	93%	7%
1965	95%	5%
1970	96%	4%
1975	97%	3%
1980	97%	3%
1985	98%	2%
1990	98%	2%
1995	98%	2%
2000	98%	2%

^(From data in National Transportation Statistics, in James Dunn's book Driving Forces Table 4-3, and FHWA Highway Statistics. Pre-1920 numbers are estimated from fuel data or vehicle miles and appear to omit private horse-drawn vehicles.)

One can’t discuss this topic without someone mentioning the National City Lines conspiracy theory. I’ll point to our previous discussion of that. It’s worth noting that virtually every city around the world followed exactly the same course the US did, and streetcars disappeared from virtually every city in Japan, Australia, China, Korea, India, Africa, Spain, France, Italy, Great Britain, Canada, Mexico, and South America.

Some sources for further reading on this topic:

Bottles, Scott L. Los Angeles and the Automobile.

Barrett, Paul. The Automobile and Urban Transit: The Formation of Public Policy in Chicago, 1900-1930.

Jones, David. Urban Transit Policy: An Economic and Political History.

St. Clair, David J. The Motorization of American Cities.

Yago, Glenn. The Decline of Transit: Urban Transportation in German and U.S. Cities 1900-1970.