Cars and Cars 2 suffer from some of the same problems that Shrek 2 & 3 suffered from: creating a self-consistent universe based on adult puns based on characters of modern society.Unless it is done with restraint and real skill it soon behinds to feel insincere and contrived (see Sharks Tail, Chicken Run).
Toy Story & Shrek did something far cleverer. Shrek especially is smart, sophisticated humour for smart, sophisticated kids. The references are all from children's literature and culture. Kids know the references and are able to understand the clever puns.
Shreks 2&3 are dumb adult humour forced into the Shrek world. Many of the puns are above children's heads and are not sophisticated enough for the adult audience. Adding plot-lines about lawyers, unions etc just confuse small kids and leave adults slightly cringing.
Pixar and Dreamworks are at their best when they choose their target audience and focus on it. Toy Story & Nemo are for smart young kids; Ratatouille & The Incredibles are for smart older kids. Then enough is added for the rest of the family: everyone gets a clever joke every few minutes; the stories are understandable by all. Wall-E and Up are very adult in the big story (but full of great fun in the small story) I thought they were wonderful but I do understand your point (although they are I no way 'awful'—even if you are 5).
I'm not convinced that Pixar have mad a bad film yet. Cars grows on me the more I see it (and believe me if you have kids you end up seeing these films any times). Nemo (by far the funniest film Pixar have made) still makes me laugh despite having seen it 20+ times.
{I'm told that Cars 2 is relentless: too fast and too complicated for young kids, but as I haven't seen it I can't judge. The fact that I haven't seen it says something: I normally see every Pixar film the week it comes out.}
The problem that Pixar has had is that we have had to judge Pixar by Pixar standards as until recently no-one was making anything as good. This has now changed. Wonderfully for us Pixar now has serious competition. Dreamworks has made a number of films that are as good as Pixar's. Some of them are as good as Pixar's best: How to Train Your Dragon, Megamind, Kung Fu Panda. Walt Disney Animation Studios is back on form with Tangled (Monsters v Aliens wasn't bad either).
How to Train Your Dragon & Tangled are thankfully free of transfer-modern-society-into-cartoon-world puns. Instead you are given a detailed, self-consistent world that complements the story (rather than being the story). This is a very good thing—something I hope that Pixar will move back towards (although I don't hold out much hope for Monsters Inc 2).
FWIW, My 4 kids all loved cars 2. They were bored at Up! and Wall-E (2 Pixar "misses" IMHO).
Actually Shrek 2 I think was on par with Shrek. My son watched it about 5 times on a flight from UK->US. I agree Shrek 3 was poor, but I think that was more to do with the story (or lack of) rather than humor etc.
Also with Toy Story... Our kids (And I) prefer Toy Story 2 to Toy Story, it just has a stronger story and more refined.
Agree @ Tangled though. Awesome back to form. Also Princess+Frog was excellent.
It's a return to form after the truly awful Wall-E and Up! (Which were both made to please critics and get awards rather than please audiences)