My friend is looking to buy a economical yet sporty car, prefers rear wheel drive for the sake of oversteer and lack of understeer, but really got to liking the vw gti after a test drive. However he then heard that the last generation gti has a suspension settup that is prone to having huge understeer issues that get even worse if you lower the car. Please fill me in if you can.

Mk4 VW do have understeer with their stock setup. However, the wheel hop eliminator kit from ecs tuning (www.ecstuning.com) and sway bars from neuspeed and autotech (25mm front and 28mm rear) will really help out. It is a front wheel drive car so it will never drive like RWD but there are parts you can replace to tailor the suspension to your driving style.

Go with an M3. Trust me.

Even if he does go for a VW, don't get a Mk3 or Mk4 no matter what you're told. They're too heavy and too underpowered. Lightweight is the way for FWD cars in every realm.