Scratch that. I think the problem is that you're removing the car, which terminates the function before it can morph the player. Try the function below in place of your existing one:

entity* temp_car;

function player_to_car()
{
temp_car = me;
me = null; // now the function is global, and continues to run
wait(1);
ent_remove(temp_car);
player.shadow = off;
player._MOVEMODE = _MODE_DRIVING;
player._FORCE = 1.5;
player._BANKING = 0.1;
player.__SLOPES = on;
player.__WHEELS = on; // rotate only when moving
player.__JUMP = off; // the car can't jump
player.__STRAFE = off; // can't strafe
player.__TRIGGER = on;
astrength.pan = 1.5; // decrease rotation speed (pan)
ent_morph (player, car_mdl);
car_entity.visible = on;
while (key_space == 0) {wait (1);} // press space to switch from car to player
temp.x = player.x - 100 * sin(player.pan); // check to see if there is an empty space (near the car door) to deploy the player
temp.y = player.y + 100 * cos(player.pan) ;
temp.z = player.z;
ent_create (car_mdl, player.pos, create_car);
vec_set (player.pos, temp);
car_entity.visible = off;
car_to_player();
}