Regardless of whether you prefer a Mk7 to a Mk8, from here on out, if you want a new Golf its a Mk8. I don't think anything they have done here will increase or decrease the sales of the Golf.
Whether the GTI is going to sell much vs the pressure of the M135i is going to be down to cost and I think this is a particular battle VW need to be very careful of not winning.
The BMW is no worse looking, the same size but more powerful, AWD, arguably has better technology and that technology is available in its most opted for forms under 40k.
The 40k threshold is important.
With VW saying the Mk8's improvements are all about the tech, they HAVE to make most of that tech available for under 40k, because BMW can do that.
If I can't have a Mk8 NavPro, HUD, a colour of my choice, DSG, dynamic lighting, ACC, lane assist, automatic parking and rear view camera for probably an RRP of under £36k RRP, why would I choose a Mk GTI that lacks AWD and 310BHP? A M135i with all of that spec is £33k discounted, just under 40k RRP.
We'll have to wait and see if VW UK can achieve that goal - but I doubt that they will.
When it comes to the R they really need to compete head on with the M135i. They need to absolutely achieve fully tech loaded for under 40k.
Sure other marques have similar sorts of cars, but the relationship between the 1 Series and the Golf is absolutely the direct competition and for most people that's two well loved German brands with equal history and merit - VW need to win this or give up the hot hatch battle that they have dominated since the Mk1 GTI.