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A statement issued by the German company said the 57-year-old would leave by mutual agreement during the 2016 season. McLaren has since announced that Capito will join its F1 team as Chief Executive Officer.
Capito led Volkswagen into the WRC in 2013, since when it has dominated the series. Both the team and Sébastien Ogier won world titles during the last three seasons and its Polo R World Rally Car won 34 out of 39 rounds in that period.
"We would like to thank Jost Capito for his exceptionally dedicated and successful work for Volkswagen in motorsport," said Frank Welsch, Volkswagen passenger cars management board member.
"The three World Rally Championship titles with the Polo R WRC represent the greatest sporting achievements in the history of the Volkswagen brand and underscore the technical competence of our company.
"With his transparent and far-sighted leadership, Jost Capito has been instrumental in this success," he added.
Capito will remain in his role until his successor is appointed.
He first worked for the Volkswagen group in 1989 in Porsche's racing department. After an executive post at the Sauber Formula 1 team, he joined Ford and led the Blue Oval to WRC manufacturers' titles in 2006 and 2007. He took over as motorsport director at Volkswagen in May 2012.