Prior to 1966, manufacturers would have had to pay a royalty to the Armstrong family for FM, making FM radios more expensive than AM only radios. There really wasn't a motivation for "decent local service." That came later. People were satisfied with AM as it was. More stations was about money, not service.
I'd offer a different set of reasons.
First, the Armstrong royalties were minimal; less than the current day Dolby licenses. Alone, they did not prevent more FM radios from being made.
Second, the cost issue was principally due to manufacturing. In the pre-IC era, FM required separate circuitry from the antenna to the tuning components, and then needed a method to select between AM and FM. Since this occupied considerable space, it made for larger radios, and used more discreet devices and entailed far more labor.
Third, by the end of the 50's, FM station count was declining. 1000 in 1950, 700 in 1960. Most were by then simulcasting AMs, so there was nothing to "see" on FM. Most folks moved on. And they did not seek out radios with FM.
Fourth, even the introduction of FM stereo did not do much for FM. It took nearly 3 years for the first 200 stations to "go stereo" so that was not a powerful incentive, particularly since the stereo stations did not program for trendsetters and young adults as they tended to be classical and beautiful music stations.
Finally, it took a "do it or else" FCC ruling that stopped simulcasting dead in 1967 for there to be much interest in putting something different on FM. When operators of simulcast FMs decided they had better do something on their facility or lose it to a potential competitor, the appeal to consumers expanded. Since AM operators did not want to compete with their existing and probably profitable AM, they picked very different formats, many of which worked and drew people to the band.
FM was around for nearly 30 years and went nowhere in most cases. Yet in the decade from 1967 to 1977, it went from often unrated to 50% of total listening nationally. The change was not driven by cost of receivers but by availability of content.