1. Nix the participation trophies. Getting a trophy for just showing up is demeaning. Pass out patches or customized rubber bracelets for attendees. These are "memorabilia" keepsakes that remind you of the event and not patronizing "so-sorry-your-car-came-in-last-but-here's-a-trophy-anyway" prizes.
2. Some kids have great dads with engineering degrees or super tools at home. Other kids have moms that don't know the difference between an exacto knife and a crosscut saw. Have a separate category for the dads to show off their car-making skills and encourage the parents to let their boys do most of the work for their own cars. Yes, there are all kinds of tips and tricks to make a car go faster, but an adult made car typically smokes a kid made car and those Cubs who honestly did their best will feel their best isn't good enough when the dad made cars win every heat. Fairness and good sportsmanship need to be modeled by dads first.
3. Some cars are fast but look like they were dragged through the mud. Other cars have the look of real metal and outshine the others but can't go faster than a snail. Different Scouts have different talents - celebrate them! Have multiple ways for Scouts to honestly win a prize. Have certificates for the fastest cars, others for the best paint job, others for creative "outside the box" designs. Have an optional theme that they can gear their car decorations to. Add a refreshment category for the parents! Who brought the best cookies to share? Let the audience vote on who brought the best punch, the best popcorn, the best dip. Maybe if the parents are showing off their cooking skills, they'll let the kids do the cars themselves (with minimal adult help).
4. Ask the den leaders ahead of time to come up with cheers to lead the audience in while Cubs are re-lubing their axles between heats. The den that can get the most noise from the audience with a cheer can win some kind of den treat for their next den meeting.
5. Split the racing wins by den. Each den has different age boys - let each Scout compete within his own age category. The younger Tigers/Wolves can get easily discouraged when they see the older Webelos who have more experience win more often. If everyone knows they are only competing against Scouts their own age/experience level, it's a little easier to take a loss. Make sure you tell the Tigers/Wolves/Bears - "You can do better next year". If a Webelos Scout has a slow car, maybe scheduling a Raingutter Regatta, or a Space Derby before he moves on to Boy Scouts will help him shine in a different way. Not everyone is cut out to race cars, and that's okay.
6. Get an enthusiastic MC. If the crowd is dead, the only fun will be in winning the races. An entertaining host can help the night be fun even for those Scouts whose cars don't win the heats. Even if you have to plant "ringers" in the audience to laugh at the run-ons, liven things up! Yes, you need to keep the races moving, but don't forget there are pauses between races and heats. Keep the momentum up and there will be less quiet time for the kids with slower cars to brood. Keep everything positive.
7. Be prepared. Be prepared for wheels to come loose, for weights to fall out, for the boy who shows up without his car because his siblings lost/broke it or his parents couldn't help him put it together. Have spares of everything ready to go, even whole cars. No one wants to sit on the sidelines.
8. Be ready to have a heart-to-heart chat with the Scout that feels like his car coming in last is like the end of the world. Validate his feelings, don't belittle them. If you have to, tell him about a time when you felt you had failed so he knows he isn't alone. Tell him all the good things you have seen him do for others. Tell him how you admire him for the way he did x, y, and z. (Of course, don't have this conversation with him alone! Make sure a parent is there with him. Keep up two-deep leadership.) Honesty and empathy are what's needed most at times like these. Reassure him that there's a lot besides racing in Cub Scouting and he'll find his talents in the long run.
9. Those parents that made the best racers should be congratulated on their skills - and recruited to help out the Cubs next year! Arrange for pinewood derby workshops so that those who have the know-how and tools to do the job can help out the ones who don't. A group effort can help build comradery and teamwork and boost support for those Cubs who don't have it home. It reduces the "me-against-them" feeling and builds fragile self-esteem for those that need it most.
10. I have to add this one here because it actually happened. When you set up a time for the derby, write it down! Make sure the cubmaster writes it down! We had a situation where everyone was told one time, and then the day of the race, the time was changed to one hour earlier by the cubmaster because he had just blocked out a 3 hour section on his calendar for the whole event and didn't remember when the actual start time was. The den leaders scrambled to let all the parents know about the change but alas, one Cub Scout didn't show up until the derby was ending. That's a killer right there; to spend time on making a car and then show up too late to race. Not cool. Don't let that happen. Make sure everyone involved in putting the derby together is on the same page, same paragraph, same word. Communication is KEY!