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My wife's bug was the biggest pos we've ever owned. It had the 2.0 too which, I've been told, is a terrible motor and has been discontinued. I'll vouch for terrible in that ours blew and had to be replaced after 13k careful miles. The 2nd motor leaked oil like a sieve, burned oil like a stunt plane, and had that yellow foamy crap on it for at least 3 years. The good news for you is it never led to anything major. Some sort of H20 is getting in there. It's not worth the hassle to find out where from. 1/2 quart is very low consumption for that motor. I was up around a quart plus per 1k-which is within VW spec.
When we turned it in (a lease) the agent went over it with a fine tooth comb. She said that VWs are crap (vs other cars that have been turned in) and that almost everyone of them comes back with the engine light on and needing mucho repair. She was amazed at how nice ours was. What she didn't know was that we avoided driving it for the last two years of the lease as to avoid repair costs. The engine light did go on all the time, but, to VW's credit, they also fixed the problem under warranty even though it had expired.
Unlikely I'll buy a VW again. Too bad as the 4 I had before that one were pretty great.
Sell it and buy a Honda.
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