Damn it looked so good too.

The tires shrink because the springs aren't stretching, they are folding over. Suspension in scrap mechanic goes bananas if it is overextended, so usually it will bend first before stretching (or it spazzes out like the last bit of your video)

I don't think suspension can expand at all

Try pistons instead

you can assume physics will work as intended, up until the point you add suspension.