Volkswagen considering replacing CEO Mueller with brand chief Diess amid shake-up

Mueller, 64, took over suddenly in 2015 when predecessor Martin Winterkorn fell victim to the company's scandal over cars rigged to cheat on diesel emissions tests.

He launched an ambitious reform plan, including investing billions of euros in electric vehicles, but has struggled to push through reforms aimed at creating a more efficient and focused company. Amid opposition from labour leaders, Mueller failed to sell motorbike maker Ducati a year ago.

Diess was regarded as a potential future CEO when he joined Volkswagen in July 2015 after serving as head of vehicle development for BMW.

However, Union Investment fund manager Ingo Speich, whose firm holds about 0.6 percent of Volkswagen preference shares, expressed concern that running a group with about 640,000 employees at more than 120 plants worldwide could prove tough for Diess, who has a reputation for micro-management.

Previous executives who attempted deeper cuts in VW's homeland, including Bernd Pischetsrieder and Wolfgang Bernhard, were forced out of office or stifled in their reform efforts.

The decision seems popular among shareholders and market forecasters, given that the price of Volkswagen shares increased by 4.5% on the German stock market.

Volkswagen will give labor leaders a management board seat as part of a broad agreement to win approval for Herbert Diess as the German carmaker's new chief executive, sources said on Wednesday.

Volkswagen Chief Executive Officer Matthias Mueller has won wide praise for steering the carmaker through the near-death experience of cheating on diesel-emissions testing - but that wasn't enough to keep him in the job.

"Diess will hold both positions, CEO of the company and the VW brand", one of the sources said, speaking on condition of anonymity because of the sensitivity of the subject.

"Put simply, we see no better alternative to Matthias Mueller to make the company fit for the future by dealing with some of the legacy businesses as well as making the right investments in future technologies".

As part of the streamlining plan, Volkswagen tried to sell motorbike manufacturer Ducati a year ago, but failed in the face of opposition from labour union leaders.

Chairman Hans Dieter Poetsch is leading the process and Mueller has "showed his general willingness to contribute to the changes", the company said in a statement.