CARS Crisis Averted: Government Bridges Funding Gap for Auto Industry
President Marcos vetoed a portion of the P92.5 billion in unprogrammed appropriations in this year's national budget, including P4.57 billion for the CARS and RACE programs.
by Alvin Uy
Published on Jan 20, 2026
When President Ferdinand "Bongbong" Marcos Jr. signed the P6.793-trillion 2026 national budget into law earlier this month, he also vetoed a portion of the P92.5 billion in unprogrammed appropriations (UA), including a critical P4.32 billion allocation for the Comprehensive Automotive Resurgence Strategy (CARS) Program and P250 million for its successor, the Revitalizing the Automotive Industry for Competitiveness Enhancement (RACE) Program. These industrial incentives, designed to support local auto manufacturing and attract foreign investment, immediately sparked concern from industry groups and policymakers alike.
How the government scrambled to fund support for the auto industry
CARS, launched in 2015, is a flagship government-industry initiative that offers tax incentives and fiscal support to automakers that meet specific production and localization targets in the Philippines. Its two main participants, Toyota Motor Philippines Corp. (TMP) and Mitsubishi Motors Philippines Corp. (MMPC), invested heavily in local assembly operations with the expectation of receiving Tax Payment Certificates (TPCs) as they fulfill performance milestones. RACE, intended to replace and expand on CARS, was to broaden eligibility and sustain the sector's competitiveness in Southeast Asia. Both programs are pillars of the government's broader industrial strategy to deepen manufacturing, spur job creation, and strengthen local supply chains.
The budget veto initially appeared to some as a bold commitment to fiscal discipline. President Marcos framed the cuts as part of an effort to "ensure that public funds are expended in clear service of national interests" and to restore trust in a budget process recently clouded by controversy over unprogrammed funds. But the move also raised alarm across the automotive sector and even among lawmakers. Senator Sherwin Gatchalian, chair of the Senate Committee on Finance, warned that striking the CARS and RACE allocations risked undercutting investor confidence at a moment when global manufacturing capital is highly mobile. "This potentially affects our reputation with foreign investors," he said, emphasizing that "the whole world might think that we are making promises, but we are not fulfilling them," a perception that could deter future commitments to the Philippines.
The Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI), the industry association representing vehicle makers, was quick to express concern. In an initial January 8 statement, CAMPI underscored that both CARS and RACE "are fundamental programs that contribute to the overall industrial development of the country" and highlighted the need for collaboration between government and industry to secure the sector's future. The organization stressed that automakers should still receive incentives "based on their actual performance that already generated economic benefits." In a subsequent statement welcoming a possible funding solution, CAMPI later described the resolution as giving "renewed confidence in our industrial policy" and putting the automotive sector "back on track for long-term investment planning."
The consequences of leaving the veto in place without an alternative would have gone beyond symbolic concerns. Automotive manufacturing in the Philippines supports hundreds of thousands of jobs across direct assembly operations and the broader parts and logistics ecosystem. Industry estimates suggested that up to 350,000 jobs could be jeopardized if CARS and RACE were defunded, given their roles in attracting investment and enabling economies of scale. Moreover, other nations in ASEAN, from Thailand to Indonesia, continue to offer robust incentive packages for auto investors, making policy predictability a key competitive factor.
Faced with mounting pressure, the Department of Budget and Management (DBM), Department of Trade and Industry (DTI), and Department of Finance (DOF) moved quickly to reassure stakeholders. In a January 19 joint statement, the agencies clarified that the veto did not represent a withdrawal of support for the automotive industry, and that the government would honor existing obligations to CARS participants through available budgetary mechanisms from the 2025 General Appropriations Act. This includes tapping savings from the Department of Public Works and Highways (DPWH) and other sources to cover validated TPCs issued to Toyota, Mitsubishi, and eligible auto parts makers. This solution aims to preserve both fiscal discipline and contractual commitments.
Under the revised plan, obligations covered by existing validated TPCs will be addressed using these funds, while remaining unfunded validated requirements may be proposed for inclusion in the 2027 National Expenditure Program and subjected to cash programming based on available fiscal space. Finance Secretary Frederick Go reiterated that "the CARS Program is a key pillar of our strategy to strengthen local manufacturing" and that the government remains committed to fulfilling legitimate obligations "consistent with the law and within the capacity of public funds."
Car industry players welcome fiscal workaround
The funding solution and the government's willingness to backfill commitments without reversing course on fiscal prudence was welcomed by industry stakeholders. Toyota Motors Philippines, for one, expressed appreciation for the government's move to reassure investors and stakeholders, noting that persistent support for incentive programs is "critically important for competitiveness" in the region. CAMPI also reaffirmed its intent to work with government and suppliers on programs and policies "to sustain automotive manufacturing in the Philippines." Yet challenges remain.
While the short-term funding gap has been addressed, the RACE Program's effective implementation still hinges on future appropriations and clear policy direction. For an industry driven by long-term capital commitments, where facilities, tooling, and supply chains take years to mature, the credibility of industrial incentives is as essential as the incentives themselves.
In an era where investors can choose among multiple ASEAN bases, policy consistency is a currency that rivals tax breaks in importance.
The CARS veto episode underscores how delicate this balance can be: a government must uphold fiscal integrity while also delivering on its industrial commitments. Whether this country can sustain both will have implications far beyond the automotive sector—for investor confidence, for jobs, and for the country's broader ambition to deepen its role in global manufacturing.
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