A very common fault on vw engines is the temp sender can fail.
This can cause poor running and MPG etc because the engines ecu thinks the temp is different to what it actually is and it then makes wrong adjustments.
It is Two temp senders in one, It not only displays temp gauge reading on your clocks it also gives the ECU a temp reading for starting ect at different temps. cold, hot, warm.
The usual symptom is the temp needle will drop off when driven (Not always though) -
It Should sit at 90c. The car can also suffer poor MPG.
It will also throw up this code on a scan with vag com or a code reader:
16500 - Engine Coolant Temp. Sensor (G62): Implausible Signal
It can throw up 3 fault codes!
16500
P0116
Engine Coolant Temp.Circ Range/Performance =dead short faulty! temp gauge either doesnt work or reads high! could be loom fault. its like its unplugged.
16501
P0117
Engine Coolant Temp.Circ Low Input = the temp goes to the ECU for cold start ect, so troublesome starting and cutting out. The ECU gets the wrong fuel/air ratio's jumping all over the place. THIS FAULT DOES NOT SHOW ON TEMP GAUGE.
16502
P0118
Engine Coolant Temp.Circ High Input = this temp never rises from cold, this means rich running, erratic idle, and low miles to the gallon ect. THIS FAULT DOES NOT SHOW ON TEMP GAUGE!
Easy fix - Ten minute job (1.8T AGU shown wont be much different on any mk4 engine TBH) :
Wait until the car is cold before you proceed, this is important if you want to limit coolant loss and not burn yourself.
You will need a large phillips head screw driver rotate the retaining screws on the top cover, each is circled below, they should pop up :
Now do the same for the three screws on the other cover. The sensor is under the top right screw :
Unplug the wiring loom from the sensor - give it a squeeze right at the top, it will lift a hook allowing you to pull the plug off.
Check you have the same colour/pin type. There are spade fitment (blue) and pin fitment (green).
VW Part numbers : sensor 059919501A - Green And old style blue : 059919501
Both cost about £20
"C" clip: 032121142 cost about about 40p
To the right of the sensor housing you will see a clip, pull this to the right, it may be tight, but should pop off. Its advisable to buy a spare while you get the part, they cost 40p and could save you a head ache. Tug on the sensor, it should pop out spilling minimal coolant in the process.
Take your new sensor and rubber compression ring, push it back into the housing, whilst keeping downward pressure applied, push the clip back in, taking care to insert it into the gap provided, this should hold the sensor snuggly in place and stop it popping back out. If you can tug it out, you've done something wrong.
Diesel engine.
http://www.golfgtiforum.co.uk/index.php?topic=100431.0 
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