It is the lack of an effective FM Limiter in these cheap single chip receivers. Improper, slow or over compensated AGC action could also contribute as excess gain is required to properly saturate a limiter stage.
This is why a $35 radio will never perform like a $700 radio.
Why do some cheap FRS radios work better? It could be that they are true superhet designs which can be made cheaply if only a single band of frequencies are the target. Or it could be that they are simply better designed.
This answer from Quora is excellent explanation of FM Limiter
Dave Yerzley
Answered Oct 26, 2020
What is the role of an amplitude limiter in an FM receiver?
The information in an audio signal is encoded as a frequency deviation from the specified carrier frequency. In the receiver this is decoded by a detector which, ideally, has an output which varies linearly with the frequency deviation of the received signal.
In addition to this sensitivity to frequency deviation, the detector may also respond to variations in amplitude of the signal. Some detector configurations are more sensitive to amplitude variations than others, but all show some degree of sensitivity to amplitude.
Amplitude variations may occur for a number of reasons.
One of the most common is multipath interference, a propagation problem. Noise may also produce amplitude variations. So an unintended sensitivity to amplitude variations could result in both distortion and noise in the audio output from the receiver if not dealt with appropriately.
It’s easy to eliminate amplitude variations by having, before the detector, amplification sufficient that any useable signal will be amplitude limited when it is fed to the detector. In a traditional superheterodyne FM tuner, this occurs in the IF strip at 10.7 MHz. In a good receiver, this limitation will occur on noise alone, so any received signal will have constant amplitude at the input to the detector (what I refer to here as the detector is often referred to in the literature as the second detector).
10–26–2020
More on circuit design of a proper FM Superheterodyne receiver.