From 1997-2005, Audi 1.8-liter turbocharged engines came with a tiny 3.7 quart oil capacity. That’s simply not a lot of oil to cool down this hot engine. In 2004, following numerous sludge complaints, Audi extended the warranty on some of the affected cars, but a class-action lawsuit said it didn't go far enough. Audi agreed to settle that lawsuit by promising to compensate owners who had already paid for repairs.
Certain 1997-2005 Audis have a 1.8-liter turbocharged engine with a tiny 3.7-quart oil capacity.
The turbochargers in these engines are hot and, according to some mechanics, there is simply not enough oil to properly dissipate the heat. The small oil capacity also removes any margin for error on oil changes, owners better not be late or they'll pay the price.
Volkswagen did install "oil coolers" in some of these Audis, but owners say they didn't do much other than leak.
In 2004, VW extended the warranty on some cars to 8 years and unlimited mileage. They also offered to help compensate owners who've had oil problems and already paid for repairs. In order to be eligible for that help, however, you had to provide documentation showing "adequate maintenance records".
Unfortunately, Audi has a different definition of "adequate." Owners who threw out one oil receipt, missed an oil change by a few miles, or decided to save a few bucks and change their own oil were all known to have their claims denied.
The situation was bad. Even Len Hunt – who was then vice president of VW – said he thought the requirements for consumers to get reimbursed were too strict.
“When you’ve got a reputation for not such stellar quality, you’ve to treat the customer properly. Sometimes your rules and regulations and the culture of the company can be a little bit harsh when it gets translated down to the customer level,” he said. “We’ve got to have some latitude in there.”
Owners will be compensated 100% of the repair costs if they can prove they performed the last two oil changes within the recommended specs before any oil sludge or engine failure started. There is a 20% "permissible variance" on those time and mileage limits.
Owners will receive 50% of the the repair costs if they cannot provide proof that the last two oil changes were made within the recommended specs before the oil sludge or engine failure happened.
There is additional information about Audi and Volkswagen oil sludge problems on VWProblems.com.