As part of a move to be announced in the next few days, the company will cut the £41,490 list price of the 3.0-litre V6 TDI version to £36,995 – a saving of £3,825.
The reduction is being introduced to bring the four-wheel drive luxury saloon into more direct competition with diesel-powered BMW and Audi rivals as well as making the car cheaper than the entry-level Jaguar XJ6.
But the dramatic price cut is not yet a permanent feature in the firm’s price list.
Volkswagen GB director Paul Willis said: ‘We are using it in a campaign that will run to the end of the year before we assess how effective it has been. By any standard, this is a lot of car at a great price.
‘It makes the Phaeton a more attractive proposition in a sector that is dominated by turbodiesel power and from an engineering viewpoint, it is up there with the best.’
Introduced in November, the V6 TDI has the potential to be the most successful version of Volkswagen’s top car.
He added: ‘It is regarded in many quarters as one of the best cars in the world, but I admit we have found marketing it challenging in a sector where the image of the brand has more credibility than its substance.
‘But we are gradually selling the Phaeton and we think that this level of pricing makes it a very interesting alternative.’
CAP expert Martin Ward said: ‘The Phaeton looked a really expensive buy when it first appeared and we have been aware that dealers have been getting support from the manufacturer to win sales. This makes the pricing more transparent. Around 250 examples are expected to be sold here this year and 90% of them will be the V6 TDI version.’
All Phaetons will have a sat-nav and in-car entertainment system with a colour screen, plus ultrasonic parking sensors fitted as standard. According to Volkswagen, this equates to a customer saving of £2,300, including VAT.