NEW YORK, May 27 (Reuters) - Chrysler LLC's bankruptcy may be more protracted than the U.S. government expects and could result in more failures among the company's supplier base, Moody's Investors Service said in new report.

Though the Obama administration is attempting to contain fallout from Chrysler's bankruptcy and to provide a template if General Motors GM.N follows suit, both companies' restructurings will likely result in heightened consolidation among suppliers, with a number going out of business, Moody's said in a report published this week.

Suppliers' troubles, in turn, could disrupt vehicle production, the agency said.

"With the down cycle gaining pace, even well known Tier 1 auto suppliers could face severe funding and liquidity issues," Moody's said.

GM moved closer to filing the largest U.S. industrial bankruptcy on Wednesday after a crucial bond exchange failed, while Chrysler faced a key court hearing on its plans to sell stronger operations to a "New Chrysler" owned by Fiat SpA (FIA.MI: Quote, Profile, Research). For details click on [ID:nN27540145].

Chrysler's sale to Fiat would be part of a fast-track schedule set by President Barack Obama's administration.

Hurt by an unprecedented drop in demand, the majority of global auto manufacturers will likely post auto operating losses this fiscal year, Moody's said.

Though governments have made efforts to boost sales, they will only bring forward demand, not create new demand, Moody's said.

"The decline in demand in many key markets just started in the second half of 2008 and is still gaining pace in most countries," the rating agency said. "Moody's expects global volumes to decline by double-digit percentages, with little hint of relief on the horizon."