Volkswagen chief executive Bernd Pischetsrieder is to step down from his post at the end of the year.
Martin Winterkorn, head of the German firm's Audi unit, will take over the post, the company said.
Mr Pischetsrieder's decision to resign comes as Europe's biggest carmaker is in undergoing a tough restructuring drive that involves 20,000 job losses.
The news came as French rival Peugeot named former Airbus chief Christian Streiff as its new chief.
Mr Streiff, who quit his Airbus post after just 99 days, will replace Jean-Martin Folz, who announced plans to resign in September.
Both VW and Peugeot have been battling against falling profits and sales.
Turnaround bid
However, VW's fortunes have begun to improve. Last month it said sales had risen 7% to 25bn euros (£17bn) during the three months to September, fuelled by healthy demand at VW's Audi and Skoda arms.
The group gave no reason for Mr Pischetsrieder's resignation saying only that it had "agreed upon his resignation effective from December 31, 2006".
The move was surprising as the VW board had agreed to extend Mr Pischetsrieder's contract until 2012 just six months ago.
At the time there had been speculation that his contract would not be renewed amid unhappiness at his swingeing cost-cutting plans
Half of the seats on the company's supervisory board are held by worker representatives and there had been speculation that they would vote against Mr Pischetsrieder.
Since then the company has agreed 20,000 redundancies and agreed to extend working hours - without increasing pay - at six factories in Germany.
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