Volkswagen introduced the third generation of the Passat at the 1988 Geneva Motor Show, and it was available in two body versions.
With the hatchback axed from the lineup, the Variant version remained the roomiest version from VW stable, apart from the minivans. It was the first Passat built on top of a Volkswagen platform and the first that featured a transverse engine instead of a longitudinally one as on its predecessors.

The Passat competed in the mid-size segment with many other European cars and, in the U.S., with the Japanese and the American carmakers. In station-wagon shape, it had a smaller competition, but the market was also smaller. At the front, the station wagon featured a flat panel that covered the area between the squared headlights. Volkswagen relied only on the bumper-mounted grille to cool the engine. The overall clean design had nothing to impress and nothing to bother. Its extended roofline towards the back of the car covered the trunk area and ended into a vertical drop on the tailgate.

Inside, the dashboard was improved and featured a wide instrument cluster extended over the center stack. It included the center vents as well. The German engineers considered placing the sound system above the climate control system. Unlike most cars on the market, the Passat was available with an automatic climate control system named Climatronic (EU-spec only). The carmaker installed two seats at the front and a wide bench for three in the back, with a folding seatback, which increased the trunk area from a decent 465 liters (16.4 cu-ft) to a respectable 1,500 liters (52.9 cu-ft).

Under the hood, depending on the market, Volkswagen installed a wide engine choice ranged between 68 hp and 174 hp. The standard transmission for the entire range was a five-speed manual, while a four-speed automatic was available on specific versions.