Trams do not have to share the road with cars. They can have (and often do have) their own dedicated right of way.
In those situations the tram only really interacts with cars on intersections, similar to level crossings for rail.
I think it's more helpful to see a tram as an upgrade on a bus, rather than a downgrade on rail.
The main advantages of trams over busses are the increased capacity, and increased efficiency (less fuel, fewer drivers per passenger needed)