Outgoing BMW CEO Norbert Reithofer shown during the launch of the BMW i3 battery-car.

BMW AG is in the midst of a major management realignment that will see a new CEO step-in, while its product development chief heads to a key competitor.

The moves announced earlier today together comprise one of the most significant shake-ups to roil the Bavarian maker since it was forced to sell off its failing British subsidiary Rover more than a decade ago.

The loss of product boss Herbert Diess could be a particularly tough blow for BMW – but it is being seen as a major development for Volkswagen AG, where he is seen as a potential candidate for that maker’s top spot when its current CEO retires.

The 58-year-old Norbert Reithofer will step-down as CEO, a year ahead of schedule, and become the maker’s new chairman. He had run BMW since 2006, and will now replace retiring chairman Joachim Milberg.

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As part of what the company is calling a generational change, Reithofer will be replaced as chief executive by BMW’s current production boss Harald Krueger.

At 49, Krueger is considered young to take on a chief executive position, but “Despite his young age, he’s been with BMW for over two decades, has a good overview of the company and appears the right choice to take on future challenges of fuel-efficiency and digitalisation,” Hanover-based NordLB analyst Frank Schwope told the Reuters news service

Krueger joined BMW as a trainee in 1992, quickly rising through the ranks. Before taking on the top production job, he headed BMW’s Mini and motorcycle brands. He also spent time in the U.K., at the maker’s engine plant, and was a production engineer at the large BMW assembly plant in Spartanburg, South Carolina.

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It is unclear whether the decision to appoint Krueger to the CEO post had any influence on the decision by product development director Diess to leave BMW. But that could offer him the opportunity to take on an even bigger role as a potential successor to Volkswagen CEO Martin Winterkorn.

Diess will take over running the flagship VW brand from Winterkorn who, at 67, is already well past the traditional German retirement age. Winterkorn is expected to step down when his current contract expires in 2016.

“With Herbert Diess we will be welcoming an outstanding personality and one of the most capable minds in the automotive industry to our Company. At the same time, this step puts the executive management of both the Group and the brand on an even broader footing,” said Winterkorn in a prepared statement.

The move allows Winterkorn to focus on his core job as chief executive overseeing a vast range of brands stretching from entry-level Seat and Skoda up to exotic and ultra-luxury marques Lamborghini, Bentley and Bugatti. VW has been aggressively expanding its portfolio in recent years, even adding the Ducatti motorcycle brand in 2012, as well as sports carmaker Porsche.

That has helped VW rapidly increase global sales, moving ahead of U.S. rival General Motors and threatening to overtake Japanese industry giant Toyota before the end of the decade.

Even so, VW has had its problems, especially in the United States, where it has suffered several years of unexpected sales declines. Profits have also been in the doldrums, leading the maker to announce a plan to cut costs by 5 billion Euros by 2017.

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