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UPDATE 4-BMW poised to pick production chief as CEO after Krueger bows out

Edward Taylor

* BMW said CEO will not seek contract extension beyond April 2020

* Company will discuss succession on July 18

* Oliver Zipse front runner to succeed Krueger -sources (Adds background on Zipse)

FRANKFURT, July 5 (Reuters) - BMW board member Oliver Zipse, a 55 year-old company veteran, is the front runner to become the carmaker's new chief executive, sources said on Friday after Harald Krueger announced he would not stay on beyond April 2020.

Krueger said he would not seek a potential extension of his contract, thereby pre-empting deliberations about whether to give him another five-year term.

BMW declined to comment on whether Zipse would be confirmed as chief executive, saying the matter of potential executive appointments will be formally decided on July 18 when the full supervisory board is due to meet.

Zipse is the youngest of three potential successors, a possible advantage as BMW has an upper age limit of 60 for management board members.

He joined BMW as a trainee in 1991 and oversaw big increases in BMW's production capacity, particularly in China and the United States.

Zipse is also a favourite because his current job is head of production, a role which previous BMW chief executives, including Krueger and BMW's current supervisory board chairman Norbert Reithofer, also held before becoming CEO.

BMW, which also owns the Mini and Rolls-Royce brands, has a track record of delivering industry-leading profit margins despite its small scale, thanks in large part to efficient production methods.

Before becoming a management board member in 2015, Zipse was a vice president of technical planning and for product strategy.

"The CEO candidate will not be a surprise," one of the sources said.

Zipse's potential rivals include 59-year-old R&D board member Klaus Froehlich and 57-year-old Chief Financial Officer Nicolas Peter. Another possible rival is Markus Duesmann, BMW's engine development expert, who left for Volkswagen in 2018.

CAR SECTOR UNDER PRESSURE

Under Krueger's leadership, BMW lost the title of best-selling luxury carmaking brand to Mercedes-Benz in 2016, and put the brakes on a plan to mass produce carbon-fibre based electric cars at a time when zero-emission vehicles made by Tesla were gaining traction with customers.

Krueger was hastily installed as CEO designate in December 2014 and formally took office in May 2015 following the defection of fellow BMW board member Herbert Diess to rival Volkswagen.

Auto sector shares have taken a hit since then, with VW's outperforming BMW's, as the Wolfsburg-based carmaker pursued a more radical electrification strategy.

Since Diess left BMW, VW's shares are down 18 percent while BMW's stock is down almost 30 percent. Germany's blue-chip Dax index is up 26 percent during the same period.

Krueger, who is 53, has avoided high-profile appearances in front of large crowds since he collapsed on stage during his first major news conference as CEO during the Frankfurt car show in September 2015.

At BMW's annual results news conference earlier this year, the company sidestepped questions about whether Krueger would receive a contract extension.

Krueger said on Friday he would be seeking new career opportunities.

"After more than ten years in the Board of Management, more than four of which as the CEO of the BMW Group, I would like to pursue new professional endeavours and leverage my diverse international experience for new projects and ventures," he said in a statement. (Reporting by Edward Taylor Editing by Michelle Martin/Georgina Prodhan/Keith Weir/Jane Merriman)