Blume started at VW Group in 1994 as a trainee at Audi, then rose through the ranks at Seat and the VW brand before joining Porsche in 2013 as head of production.
He managed to largely contain Porsche’s involvement in VW’s diesel-emissions scandal. The sports-car maker received diesel engines from sister brand Audi, which didn’t comply with emission regulations.
Diess 'significantly changed VW'
Diess initiated an ambitious push into battery-cell production and got backing for the IPO of Porsche, which is planned for the fourth quarter.
At the same time, he occasionally allowed friction with VW’s unions and other stakeholders to spill over into public. He likened VW to a "tanker" with "old, encrusted structures" in need of breaking up, vowing to modernize the company and move more quickly.
Sources with knowledge of the matter said the Porsche and Piech families, who own over half the voting rights and a 31.4 percent equity stake in Volkswagen, pressed for a change at the helm.
Diess's hard-nosed leadership style caused constant friction and undermined his effectiveness. Missteps on key projects including delays at VW’s software unit also contributed to the shake-up, people familiar with the matter said.
VW's board is betting Blume will be a more collaborative and stable leader, sources said.
"Diess was incorrigible. He significantly changed Volkswagen - for the better. But his communication was miserable," one source said, asking not to be named.
Cox Automotive executive analyst Michelle Krebs said the turmoil around Diess had perhaps become a distraction at VW. "It shouldn't be a surprise because his tenure has been rocky and controversial," she said.
Diess becomes the latest in a long line of leaders undone by VW’s complex hodgepodge of power centers. Skirmishes between the automaker’s controlling shareholder family, trade union and the German state of Lower Saxony that holds a significant stake have undermined performance and ended careers.
"Herbert Diess has strategically geared Volkswagen group toward electromobility," Wolfgang Porsche and Hans-Michel Piech, leaders of the family with majority voting rights at VW, said in a joint statement. "It is to his particular credit that the Volkswagen group today is in a strong position for further transformation."
Bernd Pischetsrieder, Volkswagen CEO from 2002-2006, and Wolfgang Bernhard, VW brand chief from 2005-2007 were forced out of their jobs after repeated clashes with VW’s works council.
Works council chief Daniela Cavallo had warned that support for the extension of Diess' contract would depend on whether he could keep Volkswagen at the forefront of Europe's car industry.
In what could be taken as a warning to Diess' successor, Cavallo said in a statement on Friday that "job security and profitability are "equally important."
Reuters and Bloomberg contributed to this story