Chrysler Corp., faced with a new cash crisis, yesterday suspended all payments to its 19,000 suppliers until it gets its first $500 million in government-guaranteed loans.
A handful of U.S. and foreign Banks that oppose the Chrysler financial aid plan have prevented the auto company from drawing on the guaranteed loans -- money the auto maker needs this month to avert bankruptcy.
Yesterday, a Chrysler spokesman said the so-called holdouts were expected to agree to the plan within a few days, joining the more than 300 other banks that endorsed it earlier. Treasury officials also remain optimistic, although representatives of some major Chrysler creditors said difficult decisions lie ahead.
The banks have agreed among themselves that they will not accept the plan if a single bank is dissatisfied.
In suspending payments to its suppliers, Chrysler is counting on them to give it a little more time to complete the bank financing agreement. in January, April and May, Chrysler suspended payments to some of its suppliers, and the end of May, its unpaid bills totaled $175 million.
Yesterday's action is the first suspension of payments to all suppliers.
Chrysler's survival is conditioned on the patience of its banks as well as suppliers and other creditors, who together are owed $4.4 billion by the auto company.
The financing plan would require them to wait for as long as five years to recover their claims against Chrysler, and creditors have had to resist a temptation to go after the company's assets.
A few banks have been unable to resist. One of them, the Deutsche Benossenschaftsbank of West Germany, recently seized $8 million in Chrysler funds as security for money it is owed by the auto company.
Chrysler reportedly asked the bank more than a week ago to transfer the funds from one of Chrysler's European customers to a Chrysler account in the United States. Instead, the West German bank decided to keep the money until Chrysler settles its debts.
Any last-minute entanglement with any of its creditors that delays the arrival of the new loans past the end of the month could be fatal for Chrysler, government sources said.
Chrysler's own financial plan, as adjusted by the government's Chrysler Loan Guarantee Board in May, estimates spending at $932 million for the second quarter of 1980, against income of $519 million, leaving an unmet demand of $413 million by the end of June.
The first $500 million installment on the $1.5 billion in guaranteed loans is the only source of funds to carry the company past the June deadline.
The pressure on the holdout banks has grown steadily since last month, when the majority of the banks accepted the financing plan.
One of the targets has been Michigan National Corp., a Detroit-based holding company whose affiliate banks are owed about $15 million by Chrysler, according to sources involved with the financing plan.
Two weeks ago, Michigan National Was still opposed to the plan, which permits Chrysler to delay or waive $642 million of principal and interest payments on bank debt between now and 1985.
Treasury Department officials didn't name Michigan National, but they speculated it would have a hard time saying "no."
"Do you really think in the end, a Detroit bank will put Chrysler into bankruptcy?" asked Deputy Treasury Secretary Robert Carswell rhetorically. b
An official of Michigan National said yesterday that the bank has now "gone along" with the financing agreement "for the most part," and described the remaining issues as modest.
The list of holdouts has dropped from about 20 at the end of May to six or seven now, according to a Treasury Department official, raising hopes within the department and within Chrysler that the rest of the gap can be closed in time.