We had this problem in ours, found out it is fairly common, my dad has same model and his did it too. In ours it was the camshaft seal. We had it replaced, it cost us about $650. Oil smell was gone after that.
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I had this problem with my passat... the valve cover gasket is slightly leaking. If you take the big plastic piece off the top of the motor (4 plastic fake screws you just have to twist) you can see along the edge of the valve cover if there is oil or not. Mine wasn't bad, but was doing the same thing you describe. Here is a write up on how to do it... really easy (http://www.taligentx.com/passat/maintenance/valvecovergasket/) or you can get a Chilton manual which will show you how to do lots of things yourself, usually $30-$40 for the book.
No, the weight of the wheels isnt the problem. Jack the car up and look at the inside wall of your tires, they are probably rubbing somewhere. On some cars, when you install different rims, you need to buy spacers that go between wheel and the rotor. If you dont, the tires can rub. Sometimes they only rub when turning. See if this is your problem. Hope this helps
from the VW manual........"expect to use about 1 litre for every 500 km."the oil level should be checked every week".........some cars have a breather on the side of the block that needs cleaning every year.(looks like a metal canister about 2.1/2" tall by 4"wide with a hose to the inlet manifold/air cleaner).
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