Ok I haven't seen this movie since I was very young but I remember I LOVED it and I would watch it all the time but I'm pretty sure the movie you're thinking of is the live action feature
"The Gnome-Mobile" (1967) Based on the book written by Upton Sinclair.
It stars Ed Wynn (Uncle Albert from Marry Poppins as well as the voice of the Mad Hatter from Disney's "Alice in Wonderland") It also stars Matthew Garber and Karen Dotrice The children from "Mary Poppins"
I can't remember any exact scenes but I remember It is about a group of Gnomes (portrayed as very tiny people) living in the forest and they are befriended by these two children and their millionaire grandfather. They sing a song that I think goes as such, "ridding along in the Gnome Mobile"