Yup, that definitely sounds like the rear trailing arm. The driver's side one seems to always rust through and need replacement at some point (unless you live somewhere without road salt). I got mine from Potomac German Auto for about $200 (used, rust free), and had my mechanic replace it for about 2 or 3 hours of labor.

Alex

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1983 300D (parked for four years)
2012 VW Sportwagen TDI Manual
2001 Miata SE
1962 Chevrolet Corvair Rampside