A change in nomenclature was the most obvious change for the 1998 Volkswagen Cabio, with the base model being redubbed the GL and the previous-year's Highline model taking on the GLS designation. Both versions were powered by a 2.0-liter 4-cylinder gas engine that generated 115 hp. It was linked to a standard five-speed manual overdrive transmission. A four-speed automatic overdrive transmission was available as an option.

The other big news was the addition of a powered convertible cloth top for the GLS trim package, while the base model GL retained the manually operated top. Both tops had a rear glass window with defogger, which helped improve visibility out the rear.

As far as standard features were concerned, they were limited on the GL. In keeping with the carmaker's goal to hold the base model's cost down, the GL came with relatively few amenities, which included power doorlocks, a AM/FM/cassette stereo system, and front airbags for the driver and passenger (side airbags were a new option for 1998). The GLS added a wide range of features, including anti-lock brakes, power windows, power door locks, heated mirrors, cruise control, alloy wheels, fog lights, and leather seats.

Although drivers were still impressed with the Cabio's economy, roominess, and handling, some have noted quality issues with specific parts, such as the car's electrical elements, some of which had to be replaced.