Volkswagen's challenge is getting harder. Back when the American automakers focused mainly on muscle, and Japanese cars were proficient but boring, VW found a great niche as the maker of affordable European funmobiles. But Japanese cars like the Nissan Altima and the Honda Accord aren't so boring anymore, and domestics like the Ford Fusion are a lot crisper than their bloated predecessors. VW's niche is getting tighter.

The Passat, redesigned for 2006, demonstrates how. This is a lovely sedan, stylish and quick and nimble and, at the upper end, quite luxurious. But it's difficult to highlight the upmarket sedan's standout features. The entry-level model—which Volkswagen calls the "value edition"—starts at about $23,500, a reasonable price for a splashy sedan. That includes a full suite of basic features and a few minor luxuries, like leatherette upholstery. Side-curtain airbags and lots of other safety gear are standard. Enthusiasts will love the fact that the standard transmission is a six-speed manual. And the base engine is a 200-horsepower turbocharged four cylinder, a slick and jazzy performer that produces a quick 0-to-60 time of 7.4 seconds.

Sounds like a great package for a car in the mid-$20s. But the Passat aspires to luxury territory, and it quickly gets pricey. Basic options like a sunroof and a six-CD changer aren't available on the Value Edition; you've got to spend an extra $1,000 just for the privilege of paying even more for options. An automatic transmission, which the majority of buyers will want, is also an option, pumping the price up another $1,000. And the base engine—boo-hoo!—requires premium fuel. There's an even more muscular V-6 that doesn't, but the entry price for that model is over $30,000. So for most buyers, the Passat will land in the high $20s, one of the most competitive segments in the entire automotive landscape. Even in that range the Passat is well worth a look, and for some it will feel just right. If it's a value, however, it's a value for prosperous buyers, not the automotive everyman Volkswagen used to cater to.