Reductions of more than £1,000 are on the way for the Passat and a new Match version is to boost the value of the Golf line-up.
A spokesman said: 'A lot of new competitors have appeared recently and we need to keep a competitive edge to our pricing.'
With the exception of the entry-level 2.0-litre 130bhp model, all Passats are to get extra specification and lower pricing. S models will have a single CD player worth £170, SE cars will come with body-colour bumpers and a six-disc CD autochanger worth £515.
V-range cars will have 17-inch alloy wheels worth £825 as standard and the luxury W8 will have an electric memory pack and cruise control, worth £1,090.
The spokesman added: 'The price reductions will still be substantial. The SE TDI PD 130 manual will cost £705 less at £17,410 and the auto will be £1,105 cheaper at £18,790.
'The V5 Tiptronic will cost £825 less at £20,905 and the Sport TDI PD Tiptronic will be £800 cheaper at £19,750.
'It will be 2004 until the next Passat arrives so we have to keep the range competitive. It's significant that the biggest savings come on the diesel models, which represent at least 70% of all Passat registrations.'
Replacing the Golf S, the Match has the same specification but adds 15-inch alloys, CD player, computer, alarm and remote central locking at no extra cost.