We are dealing with a situation where a manufacturer has tried to set end-user prices

EU Commission spokesman Michael Tscherny

The offence lasted for two years after the version of the Passat was introduced in 1996.

"The European Commission has decided to impose a fine... for having instructed its German Volkswagen dealers in 1996 and 1997 to show 'price discipline' and not to sell the new Passat at prices considerably below the recommended retail price," said the Commission in a statement.

The Commission said that VW had violated Article 81 of the EU treaty prohibiting price fixing.

Over-charged

Also in its statement, the Commission noted that prices before tax for Volkswagens in Germany over the last few years were substantially higher than in all other EU member states, except the UK.

"We are dealing with a situation where a manufacturer has tried to set end-user prices," said EU Commission spokesman Michael Tscherny said.

"This is a clear infringement of competition rules."

He estimated that German consumers could have saved up to 4,000 marks ($1,750) on each of the 400,000 Passats sold in Germany from 1996 to 1999.

Change of practice

VW changed its practices after the investigation began in 1999, EU spokesman Michael Tscherny said on Tuesday.

Analysts had estimated the fine would be between 20m euros and 31m euros for the company, which in 1999 made a profit of $555m on sales of $64.2bn.

EU rules allow for fines of up to 10% of global sales against companies found to have engaged in price-fixing, although the fines have usually been much lower.

VW has already incurred the largest fine the Commission has ever imposed on a company.

In July, the European Court of Justice upheld a penalty of 90m euros ($77m; �54m) against VW for forcing its Italian dealers not to sell to foreigners looking for cheaper cars than they could get at home.

European carmakers operate under a special exemption from antitrust rules, which allows them to set up exclusive dealerships.

That exemption expires in September 2002, and the Commission is considering whether to extend, abolish or modify it.