VW has also had to pay out billions of euros in fines following its 2015 emissions cheating scandal.
Senior works council members past year had their salaries cut and bonuses suspended after public prosecutors investigated alleged overpayments at the carmaker, a move that labour leaders are blaming on Blessing, one source said.
The move is the biggest shake up of the German auto giant since the Dieselgate scandal back in 2015.
This was not the only shift in the Volkswagen: Porsche CEO Oliver bloom joined the Board of governors of the concern and the head of Audi, Rupert Stadler will now be responsible for global sales group.
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Reuters reported that Volkswagen will give labour 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.
Mr Mueller, a former boss at Porsche, took over as VW CEO unexpectedly in September 2015 after Martin Winterkorn resigned over the scandal.
Separately, VW said it is preparing its truck and bus division for the capital markets, a step that could include selling shares in the division.
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Further, Potsch added, "Not only did he safely navigate VW through that time; together with his team, he also fundamentally realigned the group's strategy, initiated cultural change and, with great personal commitment, made sure that the Volkswagen Group not just stayed on track but is now more robust than ever before".
A few examiners cheered the arrangement of Mr. Diess. The company also admitted to using the software in some of its vehicles with 3.0-liter diesel engines.
Diess came to VW from an executive position with BMW, and the Associated Press reports his man role since becoming head of the VW brand in 2015 has been negotiating with German worker representatives.
Described as highly ambitious, Diess has earned a reputation as a fierce cost cutter unafraid of pushing through big changes.
"Audi is the core brand for this competitive segment, which features BMW, Daimler and Lexus", Diess said, when asked whether Audi is the sole premium vehicle brand.
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Gunnar Kilian who has served as Secretary-General of the Volkswagen Group Works Council until now has been appointed as the new member of the Group Board of Management for Human Resources.