Translation:We were selling the cheapest cars in Europe.
If it wanted to specify that the cars were European, it would be les voitures europeennes.
"The least expensive" is fine but "European cars" is wrong. The French sentence does not say the cars were European (and they were probably not, if "the least expensive"), but that they were sold in Europe.
It does, but apparently, "in Europe" is more common in this superlative construction than the French possessive.
Does this mean that they cost very little money, or they were constructed badly?
This means that they cost very little money.
"Cheap" would be the translation for "de mauvaise qualité".
"We were selling the less expensive cars in Europe" was not accepted. Why?
"We were selling the least expensive cars from Europe." No? Aren't "least expensive" & "cheapest" kind of interchangeable here? Especially since "least expensive" is the direct translation?
This is not my understanding of this sentence. Europe here is the distribution market, not the manufacturing area. So, the French sentence does not tell us where the cars were from/made in but that their selling prices were lower than anywhere else in Europe.