Krueger's appointment will take effect May 13, 2015, at the end of the automaker's annual meeting, BMW said.
Reithofer, whose contract term as CEO ends in 2016, will be put forward for election as supervisory board chairman at the meeting and Milberg will step down. The supervisory board in Germany has an oversight role above top management.
The changes come at a time when the Bavarian carmaker is increasingly torn between a need to placate regulatory demands for lowering vehicle emissions and satisfy client demand for ever larger sports utility vehicles.
The decision marks a step “to initiate a generational change at the head of the board of management,” BMW said.
“The automotive industry is undergoing a fundamental shift,” Milberg said in the statement. To continue as the No. 1 luxury-vehicle maker and help shape the future of the car, “we have to hand over responsibility to the next generation at an appropriate time.”
Krueger will be directing BMW’s response to challenges by Audi and Mercedes-Benz for the top spot in luxury-auto sales, as well as broader industry changes such as self-driving cars.
Krueger was being groomed for the top job after being rotated through key parts of the company, including stints running personnel and overseeing the Mini and Rolls-Royce brands. His appointment as production chief was a clear sign that he was a top candidate to succeed Reithofer, who headed manufacturing before his appointment as CEO.
Reithofer, already the youngest CEO of a German car manufacturer, has led BMW to record sales and earnings since taking the top post in 2006.
As CEO, Krueger will be younger than industry counterparts such as Mary Barra, 52, at General Motors Co.; Mark Fields, 53, at Ford Motor; and Carlos Ghosn, 60, who runs Renault and Nissan Motor.
“We have taken the first steps for a generational change, which combines the need for continuity and experience with the creative energy of the younger generation,” said Stefan Quandt, deputy supervisory board chairman and a member of the billionaire family that controls about 47 percent of BMW’s voting stock. “This combination will be a decisive factor for the future success of the BMW group.”
New development chief
BMW also said that Klaus Froehlich will become development chief with immediate effect. Froehlich, 54, replaces Herbert Diess, who is moving to Volkswagen to head the core VW brand. Froehlich joined BMW in 1987 and was in charge of the small and midsize series product line before his latest promotion.
Bloomberg contributed to this report