It got cancelled because of the movie they made and their stupid decision to kill of Prime and all the other great G1 original characters. When season 3 came out with all the new characters it just wasn't the same. I watched it but didn't love it like the original show. Most my friends were disappointed as well and stopped watching. The first 2 seasons of Transformers is my all time favorite cartoon ever. I still watch them all the time. Nothing can top the original characters.
My personal opinion is they should've started a 2nd TV series to introduce all the new characters / toys and kept the original show going. I for one would've loved a 2nd series to watch right after my original show aired. I would've been more accepting of the new characters and an even bigger fan of the new toys. Season 3 should've been Optimus vs Megatron and season 1 of the new series should've been Rodimus vs Galvatron. 65 episodes of the original guys wasn't enough for me, Thundercats got 130 episodes and I wanted at least that with Prime and the bunch. Viewership wouldn't have dropped had they done that and then to bridge the gap come out with the movie later like around 88 or 89 or even 90.
If the Transformers wouldn't have lost their popularity Sunbow wouldn't have struggled. I consider the decision to kill off Prime and all the other bots one of the biggest mistakes in movie making history. To this day I'm upset they did that. Then you have Michael Bay ruin the franchise even more with all his stupid changes to the original storyline. But that's another discussion. Lol

I think another reason was a lot of great cartoons and kids would just move on to the next thing. He-Man was king for awhile, Transformers, GI Joe, Thundercats also had their time and TMNT become like God and buried a lot of shows.

From what I remember, they moved the times alot towards the last 2-3 years, so as a kid that made it hard to keep up with the show. I'm actually watching the show right now, and the animation is terrible.not like I remember it as a kid. The stories are so dumb too, so I'm thinking the quality of the show maybe went down hill and that also played a part in the g1 shows cancelation.

The reason is that the production company Sunbow went bankrupt.
This. It's the same reason the
G.I. Joe
cartoon ended.

A journey into the realm of the obscure:
http://saturdayshowcase.blogspot.com/

The reason is that the production company Sunbow went bankrupt.

I think video games played a role in its cancelation. I remember getting the first Nintendo in 86 and instead of rushing home to catch cartoons I was rushing home to play Zelda.

They kindda lost their compass in the last two seasons. Also the quality of the graphics dropped for some reason. Also the quality of screenplay dropped. All that return of Optimus Prime is a mess and obviously done since they needed him to boost up the series. I remember as a kid preffering Ultra Magnus over Rodimus Prime, and kept waiting for UM to become prime.

Either dwindling ratings or dwindling toy sales.
Can't stop the signal.