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I had the same thing. There is a oil pressure gauge leaking causing it to drop right on the exhaust. Go get a Oil pressure sending unit about $7. Real easy to repalce and it will stop the smell. Might want to do a engine bright clean to get it all off. You should see oil pooling on top of the transmission.

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Q: What causes a smell of exhaust or burned engine oil from the air vents of a 1998 Volkswagen Passat 1.8T?
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