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I'm about 25 mins from that VW dealer and have seen that particular car advertised for months, the price steadily dropping. Think they started at $21-$22k 8 months ago. I agree, it's way overpriced even at $17.5k, and I think you'd find their warranty to be worth zero. Trade-in value on it's about $12k and I doubt they gave more than that in trade. The market is flooded with similar cars.
If $17-$18k's your budget you can do so much better. Certainly an '02 S, maybe even an '03 S with a bit higher mileage, which isn't necessarily a negative if it's been well cared for and has service records. Why pay a significant premium to buy from a dealer when there's absolutely no advantage for you being so far away? You're so much better off buying from an individual, specifically an enthusiast who's loved the car and treated it right.
Keep looking. You can do much better.
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