The 76-year-old, who has also worked at BMW, Ford and Chrysler during his career, will remain as vice chairman and senior advisor to GM CEO Rick Wagoner, the company said Monday.
Lutz will provide strategic input into GM's global design and key product initiatives until his retirement when he will be replaced as GM's product development head by Thomas G Stephens.
Stephens is presently executive vice president of Global Powertrain and Global Quality. In this new assignment, Stephens will maintain his responsibility for overseeing GM's global quality activity.
"Bob Lutz was already a legendary automotive product guy when he rejoined GM in 2001," Wagoner said in the statement. "He has added to that by leading the creation of a string of award-winning vehicles for GM during his time here. His 46 years of experience in the global automotive business have been invaluable to us."
GM spokesman Tom Wilkinson said, "He's turning 77 later this week, and it's time to start moving toward retirement and do it in a systematic matter to make sure the transition is smooth." Lutz's birthday is Thursday.
GM is also restructuring to integrate powertrain engineering and powertrain manufacturing into GM's global product development structure.
In his new role, Stephens will have responsibility for global powertrain engineering, in addition to global design, product engineering, product planning and program management.
The powertrain manufacturing organization employees will report to Gary Cowger, Group Vice President of GM Global Manufacturing and Labor Relations. Up until now, powertrain had its own manufacturing organization.
"The point is to complete the convergence of global engineering into one organisation," Wilkinson said, "Powertrains are becoming much more important as we deal with CAFE regulations, energy concerns, hybrid systems, electrification and so on."
Born in Zurich, Switzerland, Lutz first joined GM in 1963. He served in various senior positions with the carmaker in Europe until 1971 when he became BMW's head of sales. Later, he joined Ford and served as chairman of Ford of Europe.
A fighter pilot in the United States Marine Corps from 1954 to 1965, Lutz is an outspoken character in the auto industry.
Lutz, a noted car collector was hired by Wagoner in 2001 to inject passion and style into GM's product lineup.
The automaker had been widely criticised for building vehicles with bland exterior styling and interiors covered in cheap-looking plastic.
Lutz arrived and questioned everything about GM -- its products, its hierarchy and its product development strategy.
Lutz's first shot in turning GM's product lineup around was the surprise introduction of the Pontiac Solstice roadster at the 2002 Detroit auto show.
Lutz had ordered the concept built soon after joining GM -- and the concept when from initial sketch to drivable vehicle in less than four months.
There have been several other landmark vehicles during Lutz's tenure. Among them: the Cadillac Sixteen concept, the revival of the Pontiac GTO and the Chevrolet Malibu, which was named the 2008 North American Car of the Year.