Comprehensive Automotive Resurgence Strategy

Constitutional and legal basis

The Order grounds its policy on Article II and Article XII of the 1987 Constitution recognizing the role of private enterprise, incentives for needed investments, industrialization, and full employment (WHEREAS clauses).
It cites Executive Order No. 226 (s. 1987), the Omnibus Investments Code of 1987, particularly provisions empowering the Board of Investments (BOI) and encouraging investments tied to competitiveness and employment (WHEREAS clauses).
It references EO Nos. 156 (s. 2002) and 887-A (s. 2010) as establishing directions for the Motor Vehicle Development Program to accelerate development of the Philippine motor vehicle industry (WHEREAS clauses).
It directs augmentation and enhancement of existing motor vehicle development programs to support innovation, technology transfer, environmental protection, and SMEs development (WHEREAS clauses).

Policy purpose and program thrust

The Order adopts and implements the Comprehensive Automotive Resurgence Strategy Program, referred to as the CARS Program (Section 1).
The Program is adopted to attract new investments, stimulate demand, and effectively implement industry regulations to revitalize the Philippine automotive industry (Section 1).
The Program develops the country as a regional automotive manufacturing hub (Section 1).
The Program’s thrust is time-bound and output/performance-based fiscal support to attract strategic investments in motor vehicle manufacturing and parts manufacturing (Section 1).
Non-fiscal measures under existing laws, rules, and regulations continue to be implemented by relevant government agencies (Section 1).

Covered models, activities, and definitions

The CARS Program covers the manufacture of three (3) Models of four-wheeled motor vehicles (Section 2).
Enrollment covers these activities: production of enrolled Models, manufacture of Body Shell Assembly and Large Plastic Assemblies, manufacture of Common Parts and Strategic Parts not currently produced in the country at OEM standards, and shared testing facilities for vehicles and/or parts (Section 2).
Body Shell Assembly means the full set of metal components that goes from the body shop to the paint shop for one vehicle (Section 3).
Common Parts means automotive vehicle parts not currently produced in the Philippines at OEM standards that registered Participating Car Makers (PCMs) agree to source from one parts supplier, including automotive glass and automotive seat fabric (Section 3).
Full Model Change means major design change in external body shell bumpers, including grills and lamps and interior of a vehicle, typically every four to six years for passenger cars and light commercial vehicles (Section 3).
Large Plastic Parts means major plastic parts of bumpers, instrument panels, center consoles, and door trims (Section 3).
Logistics Efficiency Index is the measure of cost efficiency of logistics in the supply of motor vehicle parts and components for the enrolled Model (Section 3).
Model means a nameplate not currently manufactured in the country, but a full model change of a nameplate already manufactured in the country is also treated as a Model under the CARS Program (Section 3).
Model Life is the years during which there are no major changes in the overall design and appearance of a Model (Section 3).
Nameplate is the name used by the car maker in marketing a model, including variants, in the Philippines (Section 3).
Parts include Body Shell Assembly, Large Plastic Parts Assemblies, and the Common and Strategic Parts (Section 3).
Planned total production volume is the model life production volume up to a maximum of six (6) years as submitted by the applicant (Section 3).
Segment Weighted Average Price is the weighted average Net Manufacturer’s Price for the vehicle segment of an enrolled Model less the estimated manufacturer’s net profit of five percent (5%) (Section 3).
Standard Production Support is the quotient of sixty percent (60%) of the Model Life Budget over the difference between the planned Model Life production volume and one hundred thousand (100,000), and Model Life in this case shall not exceed six (6) years (Section 3).
Strategic Parts are automotive vehicle parts specific to an enrolled Model not currently produced in the Philippines at OEM standards, including struts and shock absorbers, plastic fuel tanks, head lamps, rear combination lamps, steering assembly, and aluminum radiators (Section 3).

BOI and inter-agency committee roles

The BOI is the lead implementing and coordinating agency for the CARS Program (Section 4).
The BOI must act upon the recommendation(s) of the Inter-Agency Committee on Automotive Industry Development created under Section 5 (Section 4).
The BOI must oversee implementation of the CARS Program (Section 4).
The BOI must submit an annual report on CARS performance to the Office of the President (OP) (Section 4).
The BOI must coordinate automotive industry development efforts of all concerned government agencies and instrumentalities (Section 4).
The Order creates an Inter-agency Committee on Automotive Industry Development to administer and implement the CARS Program (Section 5).
The Department of Trade and Industry-BOI representative serves as Chairperson, and the committee includes representatives from: Department of Finance (DOF), Department of Transportation and Communication, Department of Science and Technology, National Economic and Development Authority, Technical Education and Skills Development Authority, the Co-Chairman of the Industry Development Council, and the Co-Chairman of the National Competitiveness Council (Section 5).
The BOI acts as the Secretariat of the Inter-Agency Committee (Section 5).

Enrollment criteria, participants, and selection

The model enrollment criteria are based on: track record and Model competitiveness; new investments in Body Shell Assembly and Large Plastic Parts Assemblies; planned volume not lower than two hundred thousand (200,000) vehicles over Model Life up to a maximum of 6 years; economic impact including parts industry linkages, jobs generation, and consumer welfare; overall competitive environment and long-term industry development; and compliance with fuel efficiency and emission level standards determined by BOI, which must not be lower than standards under the Clean Air Act (Section 7).
Participants include participating Car Makers, Parts Makers, and Shared Testing Facility Proponent, each subject to BOI-required criteria and these minimum qualifications (Section 8).

Car Makers qualifications

Car Makers must be an internationally-recognized car maker/brand owner and/or its authorized in-country licensed manufacturer acting jointly with an internationally-recognized car maker/brand owner (Section 8).
Car Makers must have a proven global track record (Section 8).
Car Makers must have existing multinational operations (Section 8).

Parts Makers qualifications

Parts Makers must be endorsed by the PCM to manufacture parts of its enrolled Model (Section 8).
Parts Makers must be EM automotive Parts Maker and/or its authorized in-country licensed manufacturer acting jointly with an internationally-recognized carmaker/brand owner (Section 8).
Parts Makers must have a proven track record (Section 8).
Parts Makers must be a member of good standing of the Philippine Parts Maker Association (Section 8).

Shared Testing Facility Proponent qualifications

The shared testing facility proponent must be collectively endorsed by the PCMs (Section 8).
The shared testing facility proponent must have a proven track record (Section 8).
The BOI establishes the application and selection process for Model enrollment and the qualifying program for Participants, including imposing terms and conditions to promote CARS objectives (Section 9).
The BOI prescribes an application period during which a PCM can apply for enrollment of only one (1) Model (Section 9).
If the three (3) Models are not fully subscribed within the application period, the BOI can set a new application period for enrollment of additional Models, and in that case more than one (1) Model may be granted to a PCM (Section 9).
Upon approval, the BOI issues a Certificate of Registration to the PCM (Section 9).
The registered PCM must post a performance bond in an amount determined by the BOI (Section 9).
A registered PCM is deemed a member under the Motor Vehicle Development Program (Section 9).

Fiscal support, caps, and computation

Registered Participants may receive two (2) kinds of fiscal support during the enrolled Model Life up to a maximum of six (6) years: Fixed Investment Support (FIS) and Production Volume Incentive (PVI) (Section 10).
FIS eligibility requires: new investments in parts manufacture and/or establishment of shared testing facility; delivery of parts to the PCM within the period stipulated by the BOI; introduction of the enrolled Model to the market using parts manufactured under the CARS Program; consistent meeting of PCM enrollment criteria; and attainment of other BOI conditions at the time of registration (Section 10).
PVI eligibility requires: manufacture of at least fifty percent (50%) of assembly by weight for Body Shell Assembly; manufacture of major components of the assemblies for Large Plastic Parts Assemblies; production volume exceeding one hundred thousand (100,000) units; and attainment of other BOI conditions at the time of registration (Section 10).
Fiscal support is computed based on Segment Weighted Average Price, Standard Production Support, and Logistics Efficiency Index during manufacture of the enrolled Models (Section 10).

Automotive Development Fund and budgeting

The Department of Budget and Management (DBM), in coordination with the BOI, proposes inclusion of an Automotive Development Fund (ADF) in the annual General Appropriations Act (GAA) through the National Expenditure Program to fund fiscal support for registered eligible Participants (Section 11).
Total fiscal support for the CARS Program is given starting 2016 and must not exceed Twenty-Seven Billion Pesos (P27 Billion) (Section 11).
Each enrolled Model is limited to a maximum fiscal support amount of Nine Billion Pesos (P9 Billion) (Section 11).
Funding allocation is: Forty Percent (40%) for FIS, and Sixty percent (60%) for PVI (Section 11).
For parts and shared testing facility, FIS must not exceed 40% of capital expenditure for tooling and equipment to manufacture parts, including training costs for initial start-up operation for use of tooling and equipment (Section 11).
DBM must propose a GAA special provision that ADF use and disbursement follow the CARS Program rules (Section 11).
For each year until P27 Billion is fully utilized and/or financial obligations are fully paid, DBM indicates in the annual National Expenditure Program the annual estimated expenditure necessary to support the CARS Program, subject to DBM budget preparation policy and guidelines (Section 12).

Tax Payment Certificate and incentive limits

Fiscal support is evidenced by a non-transferrable Tax Payment Certificate (TPC) as provided by law (Section 13).
The TPC is used to defray tax and duty obligations of Participants to the National Government, specifically: excise tax, income tax, import duties, and Value Added Tax (VAT) (Section 13).
BOI, DBM, and DOF must draft an efficient and effective TPC mechanism (Section 13).
Registered Participants may not register their activity under any other incentive-granting program (Section 14).

Monitoring, audits, and consequences

Production volume, including parts importation volume and deliverables and commitments, is subject to periodic audit; parts makers and/or service providers are audited to prevent parts trading; and registered Participants are audited and strictly monitored (Section 15).
Failure to invest in parts manufacturing and/or establishment of the shared testing facility within two (2) years from issuance of the Certificate of Registration causes cancellation of the Certificate and/or forfeiture of support, and/or expulsion from the CARS Program (Section 15).
Failure to deliver parts to the PCM within the prescribed period causes the same consequences: cancellation and/or forfeiture and/or expulsion (Section 15).
The Board may limit availment of support as it deems necessary (Section 15).
Any failure to comply with the CARS Program provisions, its Implementing Rules and Regulations, and the terms and conditions of the Certificate of Registration is subject to cancellation, suspension, forfeiture of support, fines, and other applicable penalties allowed or prescribed by existing laws and rules (Section 15).

Implementing rules, review, and revocation

BOI, coordinated with DOF, DBM, and other concerned government agencies, must promulgate rules and regulations to implement the objectives and provisions of the CARS Program (Section 16).
The Inter-Agency Committee must review the existing Motor Vehicle Development Program and other relevant incentive schemes in light of CARS implementation and recent regional and global economic developments (Section 17).
The review must be completed within six (6) months from issuance of the Executive Order (Section 17).
The review may explore providing new entrants intending to participate in the CARS Program a set of incentives during a limited transition period (Section 17).
All executive orders, rules and regulations, and other issuances or parts thereof inconsistent with the Executive Order are revoked, amended, or modified accordingly (Section 18).
If any provision is declared invalid or unconstitutional, the remaining provisions remain valid and subsisting (Section 19).