SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   FORM 10-Q

       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

               For the quarterly period ended September 30, 1999

                       Commission file number: 000-24669

                         HOMETOWN AUTO RETAILERS, INC.
             (Exact name of Registrant as specified in its charter)

             Delaware                                      06-1501703
   (State or other jurisdiction of                       (IRS Employer
    incorporation or organization)                     Identification No.)

                              831 Straits Turnpike
                              Watertown, CT 06795
              (Address of principal executive offices) (Zip code)

                                 (860) 945-4900
               (Registrant's telephone number including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

                    Title                                          Outstanding
------------------------------------------------                  --------------
Common Stock, Class A, par value $.001 per share                    2,140,000
Common Stock, Class B, par value $.001 per share                    3,760,000


                                       1
<PAGE>

                                      INDEX

PART I. FINANCIAL INFORMATION                                               Page

      ITEM 1. Consolidated Financial Statements (unaudited)                   4

              Consolidated Balance Sheets at September 30, 1999
              and December 31, 1998                                           5

              Consolidated Statements of Operations for the three
              and nine months ended September 30, 1999 and 1998               6

              Consolidated Statements of Cash Flows for the nine
              months ended September 30, 1999 and 1998                        7

              Notes to Consolidated Financial Statements                      8

      ITEM 2. Management's Discussion and Analysis of Financial Condition and
              Results of Operations                                           13

PART II. OTHER INFORMATION

      ITEM 6  Exhibits and Reports on Form 8-K                                29

SIGNATURES                                                                    30


                                       2
<PAGE>

                           FORWARD LOOKING STATEMENTS

Certain statements made in this Quarterly Report on Form 10-Q are
"forward-looking statements" (within the meaning of the Private Securities
Litigation Reform Act of 1995) regarding the plans and objectives of management
for future operations. Such statements involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements of the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. The forward-looking statements included herein are based on current
expectations that involve numerous risks and uncertainties. The Company's plans
and objectives are based, in part, on assumptions involving the continued
expansion of business. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that its assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could prove
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Report will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein particularly in view of the Company's limited history of operating
multiple dealerships in a combined entity, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved. Factors that
could cause actual results to differ materially from those expressed or implied
by such forward-looking statements include, but are not limited to, the factors
set forth herein under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations."


                                       3
<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

                          HOMETOWN AUTO RETAILERS, INC.

                              BASIS OF PRESENTATION

      In July 1998, Hometown simultaneously completed the combination of the
Core Operating Companies, the Acquisitions and the Offering. The Core Operating
Companies were acquired in exchange for common stock of Hometown. The
Acquisitions were acquired for cash. E.R.R. Enterprises, Inc. ("Shaker"), one of
the Core Operating Companies has been identified as the accounting acquirer for
financial presentation purposes in accordance with SAB No. 97 because its
stockholders hold the single largest voting interest subsequent to the Offering.

      The historical consolidated statements of operations for the three month
and nine month periods ended September 30, 1998, and the statement of cash flows
for the nine months ended September 30, 1998, present the consolidated
operations of: (i) Shaker; and (ii) the remaining Core Operating Companies and
Acquisitions effective with their respective acquisition dates.

      The Company believes that; (i) the accompanying financial information
contains all the material adjustments necessary to fairly present its financial
position as of September 30, 1999; (ii) all adjustments necessary to present
fairly the results for the interim periods have been made; and (iii) all
adjustments are of a normal recurring nature. Operating results of interim
periods are not necessarily indicative of the results for full year periods.

      The unaudited pro forma financial information presented in the footnote 6,
"Business Combinations", does not purport to be indicative of the financial
position or operating results which would have been achieved had the
acquisitions taken place at the dates indicated and should not be construed as
representative of the Company's financial position or results of operations for
any future date or period.

      The Company's operations are subject to seasonal variations, with the
second and third quarters generally contributing more revenues and operating
profit than the first and fourth quarters. This seasonality is driven primarily
by: (i) factors related to the automobile and truck manufacturers from which the
Company holds franchises ("Manufacturer"), primarily the historical timing of
major Manufacturer incentive programs and model changeovers, (ii)
weather-related factors, which primarily affect parts and service and (iii)
consumer buying patterns.


                                       4
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC.
                      UNAUDITED CONSOLIDATED BALANCE SHEETS
                                 (in thousands)

                                                   September 30,   December 31,
                                  ASSETS               1999           1998
                                                     (Note 2)       (Note 2)
                                                   -------------   -------------
Current Assets

   Cash and cash equivalents                           $   844      $ 5,514
   Accounts receivable, net                              9,099        4,665
   Inventories                                          41,407       30,554
   Prepaid expenses and other current assets             3,451        1,534
                                                       -------      -------
      Total current assets                              54,801       42,267

Property and equipment, net                              7,713        2,293
Goodwill, net                                           23,429       20,879
Other assets                                             1,398          972
                                                       -------      -------
      Total Assets                                     $87,341      $66,411
                                                       =======      =======
          LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Floor plan notes payable                            $39,045      $29,624
   Accounts payable and accrued expenses                 5,337        4,798
   Current maturities of long-term debt                  1,789          946
   Other current bank borrowings                            --        1,200
                                                       -------      -------
      Total current liabilities                         46,171       36,568
Long-term debt                                           9,123          375
Deferred income taxes                                      427           --
Due to related parties                                      44          238
                                                       -------      -------
       Total liabilities                                55,765       37,181

Stockholders' Equity
   Preferred stock, $.001 par value, 2,000,000 shares
   authorized, no shares issued and outstanding             --           --
   Common stock, Class A, $.001 par value, 24,000,000
   shares authorized, 2,140,000(`99) 2,040,000 (`98)
   issued and outstanding                                    2            2
   Common stock, Class B, $.001 par value, 3,760,000
   shares authorized, issued and outstanding                 4            4
   Additional paid-in capital                           26,194       25,194
   Retained earnings                                     5,376        4,030
                                                       -------      -------
      Total stockholders' equity                        31,576       29,230
                                                       -------      -------
      Total liabilities and stockholders' equity       $87,341      $66,411
                                                       =======      =======

The accompanying Notes to Consolidated Financial Statements are an integral part
                              of these statements.


                                       5
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)

<TABLE>
<CAPTION>

                                                   For the Three Months          For the Nine Months
                                                    Ended September 30,          Ended September 30,
                                              ----------------------------  ----------------------------
                                                  1999           1998           1999            1998
                                              -------------  -------------  -------------  -------------
<S>                                           <C>            <C>            <C>            <C>
Revenues
   New vehicle sales                          $    48,184    $    25,008    $   129,485    $    38,457
   Used vehicle sales                              23,828         10,729         64,134         21,695
   Parts and service sales                          6,267          3,387         17,301          6,623
   Other dealership revenues, net                   1,875          1,014          5,024          1,929
                                              -----------    -----------    -----------    -----------
      Total revenues                               80,154         40,138        215,944         68,704

Cost of sales
   New vehicle sales                               45,375         23,441        122,043         36,058
   Used vehicle sales                              21,929          9,760         58,537         19,639
   Parts and service sales                          2,676          1,576          7,360          3,309
                                              -----------    -----------    -----------    -----------
        Cost of sales                              69,980         34,777        187,940         59,006
                                              -----------    -----------    -----------    -----------
      Gross profit                                 10,174          5,361         28,004          9,698

Amortization of goodwill                              150            150            436            150
Selling, general and administrative
   expenses                                         8,562          4,728         23,830         10,635
                                              -----------    -----------    -----------    -----------
      Income (loss) from operations                 1,462            483          3,738         (1,087)

Other income (expense)
   Interest expense, net                             (574)           (99)        (1,349)          (199)
   Other income (expense), net                         (5)           (29)           (48)             4
                                              -----------    -----------    -----------    -----------
      Income (loss) before taxes                      883            355          2,341         (1,282)

Provision (benefit) for income taxes                  376            533            995           (121)
                                              -----------    -----------    -----------    -----------

      Net income (loss)                       $       507    $      (178)   $     1,346    $    (1,161)
                                              ===========    ===========    ===========    ===========

Earnings (loss) per share, basic (Note 3)     $      0.09           (.04)   $      0.23    $     (0.42)
Earnings (loss) per share, diluted (Note 3)   $      0.08           (.04)   $      0.23    $     (0.42)
Weighted average shares, basic (Note 3)         5,900,000      4,493,333      5,867,033      2,751,111
Weighted average shares, diluted (Note 3)       6,066,667      4,493,333      5,978,144      2,751,111

</TABLE>

   The accompanying Notes to Consolidated Financial Statements are an integral
                            part of these statements.


                                       6
<PAGE>

                         HOMETOWN AUTO RETAILERS, INC.
                UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                   For the Nine Months ended
                                                                          September 30,
                                                                -------------------------------
                                                                    1999              1998
                                                                -------------     -------------
<S>                                                                <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                  $  1,346          $ (1,161)
Adjustments to reconcile net income (loss)
   to net cash provided by (used in) operating activities -
   Depreciation and amortization                                        814               297
   Deferred income taxes                                                647              (605)
   Changes in assets and liabilities:
      Accounts receivable, net                                       (2,432)           (1,108)
      Inventories                                                    (3,582)             (199)
      Prepaid expenses and other current assets                      (1,989)               (9)
      Other assets                                                     (628)               88
      Floor plan notes payable                                        5,379              (206)
      Accounts payable, accrued expenses                               (581)             (129)
      Income taxes payable                                             (368)              380
      Other long-term liabilities                                        --               (54)
                                                                   --------          --------
   Net cash provided by (used in) operating activities               (1,394)           (2,706)
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                (5,348)              (47)
   Proceeds from sales of property and equipment                         56                --
   Acquisition, net of cash acquired                                 (3,171)           (6,216)
                                                                   --------          --------
   Net cash provided by (used in) investing activities               (8,463)           (6,263)
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from long-term borrowings                                10,389                --
   Principal payments of long-term debt                              (1,325)             (123)
   Liquidity transferred to GE Capital                               (2,538)               --
   Repayments of bank borrowings                                     (1,700)              (15)
   Due from/to related parties                                          361              (954)
   Issuance of common stock                                              --            12,931
                                                                   --------          --------
   Net cash provided by (used in) financing activities                5,187            11,839
NET INCREASE IN CASH AND CASH EQUIVALENTS                            (4,670)            2,780
CASH AND CASH EQUIVALENTS, beginning of period                        5,514             3,539
                                                                   --------          --------
CASH AND CASH EQUIVALENTS, end of period                           $    844          $  6,409
                                                                   ========          ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid for - Interest                                          $  1,342          $    211
 Cash paid for - Taxes                                                  819               103
</TABLE>

   The accompanying Notes to Consolidated Financial Statements are an integral
                           part of these statements.


                                       7
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    BUSINESS AND ORGANIZATION:

      Business of Hometown Auto Retailers, Inc. ("Hometown" or the "Company")

      Hometown was founded on March 10, 1997 as Dealerco, Inc., a New York
Corporation, and was later merged into Hometown Auto Retailers, Inc., a Delaware
Corporation.. Hometown's purpose is to consolidate and operate automobile
dealerships in the Northeast, primarily in New Jersey and New England. Hometown
was formed to combine three dealership groups (the Core Operating Companies)
located in New Jersey and Connecticut, acquire two other dealerships (the
"Acquisitions") located in Vermont and Massachusetts, complete an initial public
offering (the "Offering") of its Common Stock and, subsequent to the Offering,
continue to acquire, through merger or purchase, additional dealerships to
expand its regional operations.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

      Basis of Presentation

      In July 1998, Hometown simultaneously completed the combination of the
Core Operating Companies, the Acquisitions and the Offering. The Core Operating
Companies were acquired in exchange for common stock of Hometown. The
Acquisitions were acquired for cash. E.R.R. Enterprises, Inc, and Subsidiaries
("Shaker"), one of the Core Operating Companies has been identified as the
accounting acquirer for financial presentation purposes in accordance with SAB
No. 97 because its stockholders hold the single largest voting interest
subsequent to the Offering.

      The historical consolidated statements of operations for the three month
and nine month periods ended September 30, 1998, and the consolidated statements
of cash flows for the nine months ended September 30, 1998, present the
consolidated operations of: (i) Shaker for all periods; and (ii) the remaining
Core Operating Companies, the Acquisitions and any additional acquisitions,
effective with their respective acquisition dates.

      The Company's operations are subject to seasonal variations, with the
second and third quarters generally contributing more revenues and operating
profit than the first and fourth quarters. This seasonality is driven primarily
by: (i) factors related to the automobile and truck manufacturers from which the
Company holds franchises ("Manufacturer"), primarily the historical timing of
major Manufacturer incentive programs and model changeovers, (ii)
weather-related factors, which primarily affect parts and service and (iii)
consumer buying patterns.

      Goodwill

      Goodwill represents the excess of purchase price over the estimated fair
market value of the net assets acquired and is being amortized over a forty-year
period. As part of the Exchange and the Acquisitions, deferred tax assets and
liabilities were established based on management's best estimate of the ultimate
tax basis that was expected to be accepted by the tax authority, and liabilities
for the prior tax returns of the acquired entities were based on management's
best estimate of the ultimate settlement. Based on income tax returns prepared
and filed in September 1999, management has revised the original estimates. As a
result, goodwill previously recorded has been increased by approximately $304
thousand.

      New Accounting Pronouncements

      In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 131, "Disclosure About Segments of
an Enterprise and Related Information". SFAS No. 131 requires certain financial
and supplementary information to be disclosed on an annual and interim basis for
each reportable segment of an enterprise. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997.


                                       8
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Comparative information for earlier years presented is to be restated. The
Company considers its business to be a single segment entity and therefore the
adoption has had no impact on the Company's consolidated financial position,
results of operations or cash flows.

      In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The
statement establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability and be measured at its fair value. Additionally, any changes in the
derivative's fair value are to be recognized currently in earnings, unless
specific hedge accounting criteria are met. This statement is effective for
fiscal years beginning after June 15, 2000. The Company does not believe that
adoption of this statement will have a material impact on its consolidated
financial statements.

3.    EARNINGS (LOSS) PER SHARE:

      "Basic earnings (loss) per share" represents net income (loss) divided by
the weighted average shares outstanding. "Diluted earnings (loss) per share"
represents net income (loss) divided by weighted average shares outstanding
adjusted for the incremental dilution of potentially dilutive securities. For
the three months and nine months ended September 30, 1998, the Company did not
have any potentially dilutive securities. For the three months and nine months
ended September 30, 1999, weighted average shares include potentially dilutive
shares related to a share price guarantee in connection with the acquisition of
Toyota of Newburgh (See Note 6).

      "Earnings per share" and "Weighted average shares", for the three months
and nine months ended September 30, 1999, are based on the weighted average of
the outstanding Hometown shares. The "Earnings (loss) per share" and "Weighted
average shares", for the three months and nine months ended September 30, 1998,
are based on the weighted average of the outstanding equivalent Hometown shares
of Shaker for seven months and outstanding shares of Hometown since the
offering.

      For the pro forma presentation, the "Earnings per share" and "Weighted
average shares" are those of Hometown Auto Retailers, Inc. and are based on the
weighted average outstanding shares of Hometown Auto Retailers, Inc. since the
offering.

4.    INVENTORIES:

      New, used and demonstrator vehicles are stated at the lower of cost or
market, determined on a specific unit basis. Parts and accessories are stated at
the lower of cost (determined on a first-in, first-out basis) or market.
Inventories consist of the following:

                                                 9/30/99    12/31/98
                                                 --------   ---------
                                                     (in thousands)
         New Vehicles                            $ 28,413    $ 21,759
         Used Vehicles                             11,577       7,209
         Parts, accessories and other               1,417       1,586
                                                 --------   ---------
            Total Inventories                    $ 41,407    $ 30,554
                                                 ========   =========


                                       9
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

5.    INVESTMENT IN E-COMMERCE SUBSIDIARY:

      The Company has invested in an e-commerce subsidiary, CarDay.com, which
will operate within the retail automotive sales industry. Two officers and one
outside director of the Company have personal investments in this venture and
additional shares and options have been issued to officers of the subsidiary.
The Company has retained an 82% ownership interest in the subsidiary. CarDay.com
expects to provide both buyers and sellers of used cars with a more effective
and efficient way to buy and sell used cars on the Internet, including a
mechanism through which to complete a transaction, as well as offering car
owners an array of financing, insurance, warranty, and other related products
and services.

      As of September 30, 1999, the Company had advanced $64 thousand to this
subsidiary. The Company has advanced an additional $320 thousand subsequent to
September 30. CarDay.com has also obtained bridge loan financing of $1 million
from a major financial institution. This loan was obtained without recourse
against Hometown Auto Retailers, Inc.

      The financial statements of the Company for the three and nine months
ended September 30, 1999, include start up and development expenses totaling
$139 thousand relating to the e-commerce subsidiary. The balance sheet of the
Company includes $562 thousand in cash, $47 thousand in property and equipment,
and $365 thousand in other assets relating to CarDay.com. Liabilities
attributable to the subsidiary on the Company's financial statements include the
$1 million short-term loan.

6.    BUSINESS COMBINATIONS:

      In July 1998, Hometown Auto Retailers, Inc. simultaneously completed its
combination of the Core Operating Companies, the Acquisitions and the Offering.
The Core Operating Companies were acquired in exchange for common stock of
Hometown Auto Retailers, Inc. (the "Exchange") and the Acquisitions were
acquired for cash.

      In January 1999, the Company acquired all of the Common Stock of
Morristown Auto Sales, Inc., a Lincoln/Mercury dealer in New Jersey for
approximately $.5 million in cash. The transaction has been accounted for as a
purchase and the resulting goodwill was approximately $.4 million, which will be
amortized over 40 years.

      In April 1999, the Company acquired its first dealership in New York,
Newburgh Toyota, for a purchase price of approximately $2.9 million in cash,
100,000 shares of Hometown Class A Common Stock and the assumption of floor plan
and various other debt for the fully capitalized operation. The Company has
guaranteed that the stock issued in connection with this transaction will have a
value of $1,000,000 at the end of a two-year period. Additional shares of the
Company's Common stock will be issuable if there is a shortfall. This dealership
is expected to add approximately $50.0 million and $1.0 million, respectively,
to the Company's annualized revenues and income before income taxes for the year
ended December 1999. The transaction has been accounted for as a purchase and
the resulting goodwill was approximately $2.0 million, which will be amortized
over 40 years.

      Subsequent to September 30, 1999, the company acquired a Mazda franchise
in the Framingham, Massachusetts area. The purchase price of $700 thousand in
cash included signage, new car inventory, and parts inventory. The new franchise
will be tucked into the company's existing Bay State dealership. The transaction
has been accounted for as a purchase and the resulting goodwill was
approximately $0.4 million, which will be amortized over 40 years.


                                       10
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6.    BUSINESS COMBINATIONS (Continued):

      The following table of summary pro forma unaudited financial data presents
the unaudited consolidated results of operations for the three months and nine
months ended September 30, 1999; and for the three months and nine months ended
September 30, 1998, certain combined pro forma financial data as if the
combinations of the Core Operating Companies, the Acquisitions and the Offering
had occurred as of January 1, 1998.

<TABLE>
<CAPTION>
                                           For the Three Months       For the Nine Months
                                           Ended September 30,        Ended September 30,
                                           --------------------     ------------------------
                                           1999          1998         1999           1998
                                                      (Pro forma)                 (Pro forma)
                                           -------    ----------    ----------    ----------
<S>                                     <C>           <C>           <C>           <C>
Income Statement Data:
Revenues
   New vehicle sales                    $   48,184    $   35,773    $  129,485    $  107,589
   Used vehicle sales                       23,828        16,867        64,134        57,576
   Parts and service sales                   6,267         4,986        17,301        16,269
   Other dealership revenues, net            1,875         1,445         5,024         4,513
                                        ----------    ----------    ----------    ----------
     Total revenues                         80,154        59,071       215,944       185,947
Cost of sales                               69,980        51,262       187,940       161,715
                                        ----------    ----------    ----------    ----------
      Gross profit                          10,174         7,809        28,004        24,232
Amortization of goodwill                       150           157           436           363
Selling, general and administrative
   expenses                                  8,562         6,575        23,830        19,153
                                        ----------    ----------    ----------    ----------
     Income from operations                  1,462         1,077         3,738         4,716

Other expense
  Interest expense, net                       (574)         (147)       (1,349)         (644)
  Other expense, net                            (5)           29           (48)           (4)
                                        ----------    ----------    ----------    ----------
     Income before taxes                       883           959         2,341         4,068

Provision for income taxes                     376           444           995         1,688
                                        ----------    ----------    ----------    ----------
     Net income                         $      507    $      515    $    1,346    $    2,380
                                        ==========    ==========    ==========    ==========
Earnings per share, basic (Note 3)      $     0.09    $     0.09    $     0.23    $     0.41
Earnings per share, dilutive (Note 3)   $     0.08    $     0.09    $     0.23    $     0.41
Weighted average shares, basic           5,900,000     5,800,000     5,867,033     5,800,000
Weighted average shares, Dilutive        6,066,667     5,800,000     5,978,144     5,800,000
Other Data:
Retail new vehicles sold                     1,865         1,393         5,196         4,115
Retail used vehicles sold                    1,331           955         3,718         3,175
</TABLE>


                                       11
<PAGE>

                  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

      The discussion of "The Company - Pro Forma Information" should be read in
conjunction with footnote 6, "Business Combinations". The discussion on
"Hometown Auto Retailers, Inc.-Historical Information" should be read in
conjunction with the Consolidated Financial Statements and related notes thereto
appearing elsewhere in the Company's Form 10Q for the three months and nine
months ended September 30, 1999.

                       The Company - Pro Forma Information

Overview

      In July 1998, Hometown simultaneously completed the combination of the
Core Operating Companies, the Acquisitions and the Offering. The Core Operating
Companies were acquired in exchange for common stock of Hometown. The
Acquisitions were acquired for cash.

      In the attached pro forma consolidated financial statements, the Exchange,
the Acquisitions and other acquisitions are accounted for using the purchase
method of accounting. E.R.R. Enterprises, Inc. (Shaker), one of the Core
Operating Companies, was identified as the accounting acquirer for pro forma
financial statement presentation purposes in accordance with SAB No. 97 because
its stockholders received the largest number of shares of Class B Common Stock
in the Exchange, which shares represent the single largest voting interest in
the Company.

      The 1998 pro forma combined data represents a summation of certain data on
an historical basis on the assumption that the combination of the Core Operating
Companies, the Acquisitions and the Offering had occurred on the first day of
the period presented, and includes the effects of pro forma adjustments. This
data may not be comparable to and may not be indicative of Hometown's
post-combination results of operations because the acquired dealerships were not
under common control of management. The pro forma adjustments primarily relate
to: (a) amortization of the goodwill using an estimated useful life of 40 years;
(b) adjusting compensation expense and management fees to the level that certain
management employees and owners of the Core Operating Companies and the
Acquisitions will contractually receive subsequent to the closing of the
combination and the Acquisitions; (c) adjusting rent expense to reflect newly
negotiated fair market value leases; (d) adjustments to interest income on Cash
and Cash Equivalents not realized as part of the combination and the
Acquisitions offset by the reduction of interest expense on certain long-term
debt that will be liquidated out of proceeds of the Offering and the reduction
of interest expense on debt and leases not assumed as part of the transactions
with the acquired dealerships; (e) adjustments to interest expense resulting
from the repayment of floor plan obligations with proceeds from the Offering and
the interest savings for refinancing the balance of the floor plan obligations
with a commercial lender; (f) adjustments for incremental provision for federal
and state income taxes relating to the pro forma adjustments described above and
the loss of S-corporation status of Muller Toyota, Muller Chevrolet, Bay State
and Brattleboro; (g) the accounting adjustments required to reflect the purchase
of the Core Operating Companies and the Acquisitions, the recording of the
associated transaction costs and the settlement of certain related party
payables and a distribution to the owners of Shaker; (h) the adjustments needed
to record the receipt of the net Offering; (i) adjustments to reflect the
settlement of the cash portion of the acquisitions; and (j) adjustments to
reflect the pay-down of certain long-term debt; and (k) adjustment to reflect
the pay-down of floor plan obligations with proceeds from the Offering.


                                       12
<PAGE>

Operating Strategy

      Since July 31, 1998, the Company has begun to integrate certain functions
and to implement practices that have been successful at other franchises,
including those of the Core Operating Companies, and in other retail segments
("best practices"). This integration and implementation of best practices may
present opportunities to increase revenues and reduce costs but may also
necessitate additional costs and expenditures for corporate administration,
including expenses necessary to implement the Company's acquisition strategy.
These various costs and possible cost-savings and revenue enhancements may make
historical operating results not comparable to, or indicative of, future
performance.

Combined Revenues, Units, Gross Profit and Gross Profit Percentage to Revenues

      The total revenue by category for Hometown for the quarters and nine
months ended September 30, 1999 and September 30, 1998 (Pro forma), are as
follows:

<TABLE>
<CAPTION>

                              For the three months ended          For the nine months ended
                                     September 30,                      September 30,
                                  1999            1998              1999            1998
                                              (Pro forma)                        (Pro forma)
                               -----------    -----------        ----------      -----------
                                    (in thousands)                     (in thousands)
<S>                           <C>              <C>                 <C>             <C>
New vehicle                   $    48,184      $  35,773         $  129,485       $ 107,589
Used vehicle - retail              18,998         12,868             52,374          43,236
Used vehicle - wholesale            4,830          3,999             11,760          14,340
Parts and service                   6,267          4,986             17,301          16,269
F&I and other                       1,875          1,445              5,024           4,513
                              -----------      ---------         ----------       ---------
Total Revenue                 $    80,154      $  59,071         $  215,944       $ 185,947
                              ===========      =========         ==========       =========

</TABLE>

      The units sold by category for Hometown for the quarters and nine months
ended September 30, 1999 and September 30, 1998 (Pro forma), are as follows:

<TABLE>
<CAPTION>

                               For the three months ended          For the nine months ended
                                      September 30,                      September 30,
                                   1999            1998              1999            1998
                                               (Pro forma)                        (Pro forma)
                               -----------     -----------        ----------      -----------
<S>                                  <C>            <C>                <C>             <C>
New vehicle                          1,865          1,393              5,196           4,115
Used vehicle - retail                1,331            955              3,718           3,175
Used vehicle - wholesale             1,058            946              2,525           3,081
                               -----------      ---------         ----------       ---------
Total units sold                     4,254          3,294             11,439          10,371
                               ===========      =========         ==========       =========
</TABLE>


                                       13
<PAGE>

      The new vehicle revenue by manufacturer for Hometown for the quarters and
nine months ended September 30, 1999 and September 30, 1998 (Pro forma), are as
follows:

<TABLE>
<CAPTION>

                               For the three months ended          For the nine months ended
                                      September 30,                      September 30,
                                   1999            1998              1999            1998
                                               (Pro forma)                        (Pro forma)
                               -----------     -----------        ----------      -----------
                                     (in thousands)                     (in thousands)
<S>                            <C>              <C>               <C>              <C>
Ford Motor                     $    27,032      $  22,954         $   74,348       $  67,950
Toyota Motor                        14,776          6,990             35,226          18,246
Chrysler                             3,956          4,290             13,888          14,703
GM                                   2,018          1,058              4,927           5,519
All Other                              402            481              1,096           1,171
                               -----------      ---------         ----------       ---------
Total Revenue                    $  48,184      $  35,773         $ 129,485        $ 107,589
                               ===========      =========         ==========       =========
</TABLE>

      The new vehicle units sold by manufacturer for Hometown for the quarters
and nine months ended September 30, 1999 and September 30, 1998 (Pro forma), are
as follows:

<TABLE>
<CAPTION>

                               For the three months ended          For the nine months ended
                                      September 30,                      September 30,
                                   1999            1998              1999            1998
                                               (Pro forma)                        (Pro forma)
                               -----------     -----------        ----------      -----------
<S>                                    <C>            <C>                <C>             <C>
Ford Motor                             908            838              2,751           2,374
Toyota Motor                           688            301              1,612             786
Chrysler                               159            189                565             649
GM                                      87             41                207             247
All Other                               23             24                 61              59
                               -----------      ---------         ----------       ---------
Total units sold                     1,865          1,393              5,196           4,115
                               ===========      =========         ==========       =========
</TABLE>


                                       14
<PAGE>

      The gross profit by category for Hometown for the quarters and nine months
ended September 30, 1999 and September 30, 1998 (Pro forma), are as follows:

<TABLE>
<CAPTION>
                               For the three months ended          For the nine months ended
                                      September 30,                      September 30,
                                   1999            1998              1999            1998
                                               (Pro forma)                        (Pro forma)
                               -----------     -----------        ----------      -----------
                                     (in thousands)                     (in thousands)
<S>                            <C>              <C>               <C>              <C>
New vehicle                    $     2,808      $   2,278         $    7,441       $   6,619
Used vehicle - retail                1,879          1,511              5,523           5,142
Used vehicle - wholesale                21            (5)                 75              81
Parts and service                    3,591          2,580              9,941           7,877
F&I and other                        1,875          1,445              5,024           4,513
                               -----------      ---------         ----------       ---------
Total Gross Profit             $    10,174      $   7,809         $   28,004       $  24,232
                               ===========      =========         ==========       =========
</TABLE>

      The gross profit percent of revenue by category for Hometown for the
quarters and nine months ended September 30, 1999 and September 30, 1998 (Pro
forma), are as follows:

<TABLE>
<CAPTION>

                               For the three months ended          For the nine months ended
                                      September 30,                      September 30,
                                   1999            1998              1999            1998
                                               (Pro forma)                        (Pro forma)
                               -----------     -----------        ----------      -----------
<S>                                 <C>            <C>                <C>             <C>
New vehicle                           5.8%           6.4%               5.7%            6.2%
Used vehicle - retail                 9.9%          11.7%              10.5%           11.9%
Used vehicle - wholesale              0.4%         (0.1%)               0.6%            0.6%
Parts and service                    57.3%          41.7%              57.5%           48.4%
F&I and other                       100.0%         100.0%             100.0%          100.0%
Total Gross Profit percent           12.7%          13.2%              13.0%           13.0%

</TABLE>

Three months ended September 30, 1999 compared with pro forma three months ended
September 30, 1998.

      Revenue

      Total Revenue increased $21.1 million, or 35.7%, from $59.1 million for
the three months ended September 30, 1998 to $80.2 million for the three months
ended September 30, 1999.

      Revenue of the dealerships acquired during the current year, Toyota of
Newburgh (acquired April 1) and Morristown Lincoln/Mercury (acquired January 1)
totaled $17.8 million. "Same store" revenue from the other dealerships increased
$3.3 million, or 5.6%.


                                       15
<PAGE>

      Same store revenue from the sale of new vehicles increased $1.9 million,
or 5.3% from $35.8 million for the three months ended September 30, 1998 to
$37.7 million for the three months ended September 30, 1999. An increase in
sales of 88 units adding about $2.2 million to revenues was partially offset by
a $238 decrease in per unit revenues. Same store revenue for Lincoln/Mercury
cars, the largest selling brand in the Company, increased by $759 thousand.
However, per unit revenues for Lincoln/Mercury decreased $944 reflecting changes
in pricing and a change in mix to lower priced models. This change was
principally caused by reductions in the sales of Lincoln Town Cars to livery
operators related to the introduction of model changes in the 1998 model year.
Livery operators typically replace their fleets in the year of a model change,
which causes a reduction of sales in the succeeding year.

      Revenue from the sale of used vehicles at retail increased $ 6.1 million,
or 47.6%, from $12.9 million for the three months ended September 30, 1998, to
$19.0 million for the three months ended September 30, 1999. The principal
reasons for the increase included acquisition related increases of $4.0 million
coupled with an increase in same store revenues of $2.1 million or 16.4%. An
increase in same store unit sales of used vehicles at retail of 89 vehicles was
augmented by an increase in average revenue per vehicle of $867. Same store unit
sales of used vehicles at wholesale declined 199 units or 21.0% reflecting full
implementation of an inventory management strategy whereby used cars are
transferred between dealerships to be sold at retail rather than being sold at
wholesale which can result in lower gross profit.

      Parts and service sales revenue increased $1.3 million, or 25.7%, from
$5.0 million for the third quarter of 1998 to $6.3 million for the same period
in 1999. Increases due to acquisitions of new dealerships were partially offset
by the intentional reductions in low margin activities, including closing two
body shops.

      Finance, insurance, extended service and other dealership revenues
increased $430 thousand, or 29.6% from $1.4 million for the three months ended
September 30, 1998 to $1.9 million for the three months ended September 30,
1999. This increase is primarily due to the aforementioned acquisitions.

      Gross Profit

      Total gross profit increased $2.4 million, or 30.3%, from $7.8 million for
the three months ended September 30, 1998, to $10.2 million for the three months
ended September 30, 1999. The primary reason for this increase was the effect of
the aforementioned acquisitions, which added $2.0 million in gross profit for
the quarter.

      Same store gross profit increased $371 thousand, or 4.8%, from $7.8
million for the three months ended September 30, 1998, to $8.2 million for the
three months ended September 30, 1999. Gross profit on parts and service sales
was the largest single component of that increase. Such profits increased $292
thousand, or 11.3%, to $2.9 million. The increase in profitability in parts and
service sales is attributable to improved pricing, increased cost controls at
the dealerships, and a reduction in lower margin activities.

      The increase in same store new vehicle sales of 88 units was more than
offset by a reduction in the average gross profit per new vehicle of $162, or
9.9%. That per vehicle reduction resulted from changes in pricing and mix.
Reductions in livery sales have resulted in a shift in sales mix toward lower
priced models, which carry lower gross profit. For used vehicles sold at retail,
an 89 unit increase in same store sales was largely offset by a reduction of $89
in the average gross profit per vehicle.

      Amortization of Goodwill

      Goodwill amortization for the quarter ended September 30, 1999 totaled
$150 thousand compared to $102 thousand for the quarter ended September 30,
1998, reflecting the acquisitions referred to above.


                                       16
<PAGE>

      Selling, General and Administrative Expenses

      On a pro forma basis, after adjustment, selling, general and
administrative expenses increased $2.0 million, or 30.2%, from $6.6 million for
the three months ended September 30, 1998, to $8.6 million for the three months
ended September 30, 1999. $1.6 million of the increase is due to the
above-mentioned acquisitions and the remainder includes the addition of
corporate overhead expenses related to operation as a public company, increased
depreciation related to real estate acquisitions, and increased advertising and
promotion. The Company has not yet fully realized the economies of scale
relating to the standardization and centralization of administrative functions.
Additionally, the company is investing in a newly created e-commerce subsidiary
within the retail auto sales industry. Selling, general, and administrative
expenses for the third quarter of 1999 include $139 thousand relating to this
venture.

      Net Interest Expense

      After pro forma adjustments were reflected for the quarter ended September
30, 1998 interest expense increased $427 thousand from $147 thousand for the
quarter ended September 30, 1998 to $574 thousand for the quarter ended
September 30, 1999. This increase was the result of increased floor plan
liabilities in support of higher inventory levels and increased long term debt
related to the purchase of the business of Toyota of Newburgh and the purchase
of the real estate at Baystate Lincoln / Mercury.

      Other Income

      Other income was insignificant in both quarters presented.

      Pre-Tax Income

      Income before taxes decreased $76 thousand, or 7.9%, from $959 thousand
for the three months ended September 30, 1998, to $883 thousand for the three
months ended September 30, 1999. This decrease resulted from the increases in
selling, general , and administrative expense and interest expense of $2.0
million and $0.4 million, respectively, which were offset by the $2.4 million
increase in gross profit.

      Provision (benefit) for income tax

      The effective income tax rate was 46% in the three months ended September
30, 1998 and 43% in the three months ended September 30, 1999. The change in the
rate was the result of the impact of current forecasts of income before taxes,
and current forecasts of permanent differences between tax and book income.

      Net Income

      Net income decreased $8 thousand, or 1.6%, from $515 thousand for the
quarter ended September 30, 1998, to $507 thousand for the quarter ended
September 30, 1999. Gross profit increased by $2.4 million. That increase was
offset by increases in selling, general, and administrative expenses ($2.0
million) and interest expense ($0.4 million), both primarily attributable to the
acquisitions of new dealerships. Additionally, selling, general, and
administrative expenses include startup and development expenses of $139
thousand relating to the new e-commerce subsidiary, CarDay.com. If the
CarDay.com subsidiary had not incurred these expenses in the third quarter the
Company's net income would have been $587 thousand, or $0.10 per share.

      Earnings Per Share, Basic and Diluted

      See Note 6 to the Consolidated Financial Statements for a description of
potentially dilutive securities in 1999. Exclusive of the expenses relating to
the new e-commerce subsidiary, CarDay.com, net income for the three months ended
September 30, 1999, was $0.10 per share, basic and diluted.


                                       17
<PAGE>

Nine months ended September 30, 1999 compared with pro forma nine months ended
September 30, 1998

      Revenue

      Total revenue increased $30.0 million, or 16.1% from $185.9 million for
the nine months ended September 30, 1998 to $215.9 million for the nine months
ended September 30, 1999.

      An increase of $37.8 million related to the acquisitions of Toyota of
Newburgh on April 1, 1999 and Morristown Lincoln/Mercury on January 1, 1999 was
offset by reductions in "same store" revenues for the other dealerships of $7.8
million or 4.2%.

      Same store revenue from the sale of new vehicles decreased $406 thousand,
or 0.4% from $107.6 million for the nine months ended September 30, 1998 to
$107.2 million for the nine months ended September 30, 1999. Increased sales
volume of 62 units was offset by a reduction in average revenue per vehicle of
$485. Same store revenue per unit of Lincoln/Mercury cars (which is the highest
selling brand in the Company) decreased $1,997 reflecting changes in pricing and
a change in mix to lower priced models. This change was principally caused by
reductions in the sales of Lincoln Town Cars to livery operators related to the
introduction of model changes in the 1998 model year. Livery operators typically
replace their fleets in the year of a model change and therefore sales tend to
be reduced in the succeeding year.

      Revenue from the sale of used vehicles at retail increased $9.2 million,
or 21.1%, from $43.2 million for the nine months ended September 30, 1998, to
$52.4 million for the nine months ended September 30, 1999. The principal
reasons for the increase included acquisition related increases of $8.9 million.
Additionally, there was an increase in same store revenues of $240 thousand or
0.6%. A decline in same store unit sales of used vehicles at retail of 95
vehicles was offset by an increase in average revenue per vehicle of $498. Used
car revenues were impacted by the soft market in the northeast caused by
reductions of new car pricing by manufacturers which strengthened demand for
lower margin new cars and reduced sales of higher margin used cars. Same store
unit sales of used vehicles at wholesale declined 1,082 units or 35.1%
reflecting the implementation of an inventory management strategy whereby used
cars are transferred between dealerships rather than being sold at wholesale
which can result in lower gross profit.

      Parts and service sales revenue increased $1.0 million, or 6.3% from $16.3
million for the nine months ended September 30, 1998, to $17.3 million for the
nine months ended September 30, 1999. Increases due to acquisitions have been
partially offset by the elimination of two low margin body shops, reductions in
livery related sales, and reduced sales of Jeep vehicles.

      Finance, insurance, extended service and other dealership revenues
increased $510 thousand, or 11.3% from $4.5 million for the nine months ended
September 30, 1998 to $5.0 million for the nine months ended September 30, 1999.
This increase is primarily due to acquisitions of dealerships.

      Gross Profit

      Total gross profit increased $3.8 million, or 15.6%, from $24.2 million
for the nine months ended September 30, 1998, to $28.0 million for the nine
months ended September 30, 1999. The primary reason for this increase was the
effect of the aforementioned acquisitions. Same store gross profit decreased
$976 thousand, or 4.0%, from $24.2 million for the nine months ended September
30, 1998, to $23.3 million for the nine months ended September 30, 1999.

      Gross profit on sales of new vehicles increased $822 thousand, or 12.4%,
to $7.4 million for the first three quarters of 1999. On a same store basis such
profits declined $503 thousand, or 7.6%, from $6.6 million for the first three
quarters of 1998 compared to $6.1 million for the same period in the current
year. This decrease is primarily due to a decrease in the average gross profit
per new vehicle of $145 as a result of changes in pricing and mix.


                                       18
<PAGE>

      Gross profit on the sale of used vehicles at retail increased $381
thousand, or 7.4%. Same store gross profit on used retail sales decreased $720
thousand, or 14.0%, from $5.1 million for the nine months ended September 30,
1998, to $4.4 million for the nine months ended September 30, 1999. The decline
in same store sales was due to the decrease of 95 units in the sales of used
vehicles along with a decrease of $183 in average gross profit per unit.

      Parts and service gross profit increased $2.0 million, or 26.2%, from $7.9
million for the nine months ended September 30, 1998, to $9.9 million for the
nine months ended September 30, 1999. Same store gross profit on parts and
service increased $471 thousand to $8.3 million for the three quarters ended
September 30, 1999. The increase in same store profitability in parts and
service sales is attributable to improved pricing, increased cost controls at
the dealerships, and a reduction in lower margin activities.

      Amortization of Goodwill

      Goodwill amortization increased to $436,000 for the nine months ended
September 30, 1999 from $363,000 for the nine months ended September 30, 1998,
reflecting the acquisitions referred to above.

      Selling, General and Administrative Expenses

      On a pro forma basis, after adjustment, selling, general and
administrative expenses increased $4.6 million, or 24.4%, from $19.2 million for
the nine months ended September 30, 1998, to $23.8 million for the nine months
ended September 30, 1999. $3.7 million of the increase is due to the above
mentioned acquisitions and the remainder includes the addition of corporate
overhead expenses related to operation as a public company, increased
depreciation related to real estate purchases and increased advertising and
promotion. The Company has not yet fully realized the economies of scale
relating to the standardization and centralization of administrative functions.
Additionally, the company is investing in a newly created e-commerce subsidiary
within the retail auto sales industry. Selling, general, and administrative
expenses for the third quarter of 1999 include $139 thousand relating to this
venture.

      Net Interest Expense

      After pro forma adjustments were reflected for the nine months ended
September 30, 1998 interest expense increased $705 thousand or 109%, from $644
thousand for the nine months ended September 30, 1998 to $1.3 million for the
nine months ended September 30, 1999. This increase was the result, in the most
recent quarter, of increased floor plan liabilities in support of higher
inventory levels and increased long term debt related to the purchase of the
business of Toyota of Newburgh and the purchase of the real estate at Baystate
Lincoln / Mercury.

      Other Income

      Other income was insignificant in both periods presented.

      Pre-Tax Income

      Income before taxes decreased $1.8 million, or 42.5%, from $4.1 million
for the nine months ended September 30, 1998, to $2.3 million for the nine
months ended September 30, 1999. The decrease was primarily due to increased
selling, general and administrative expenses of $4.6 million, increased
amortization of goodwill of approximately $0.1 million, increased interest
expense of $0.7 million offset by increased gross profit of $3.8 million.
Pre-tax income as a percent of total revenue is 2.2% for the nine months ended
September 30, 1998, and 1.1% for the nine months ended September 30, 1999.


                                       19
<PAGE>

      Provision for income tax

      The effective income tax rate was 41.5% in the nine months ended September
30, 1998 and 42.5% in the nine months ended September 30, 1999. The change in
the rate was the result of the impact of current forecasts of income before
taxes, and current forecasts of permanent differences between tax and book
income.

      Net Income

      Net income decreased $1.03 million, or 43.4%, from $2.4 million for the
nine months ended September 30, 1998, to $1.3 million for the nine months ended
September 30, 1999. The decrease was primarily due to increased selling, general
and administrative expenses of $4.6 million, increased amortization of goodwill
of approximately $0.1 million, increased interest expense of $0.7 million offset
by increased gross profit of $3.8 million and a decrease in the Provision for
Income Taxes of $0.7 million. The expenses related to the CarDay.com subsidiary
had an after tax impact on net income totaling $80 thousand.

      Earnings Per Share, Basic and Diluted

      See Note 6 to the Consolidated Financial Statements for a description of
potentially dilutive securities in 1999. Exclusive of the expenses relating to
the new e-commerce subsidiary, net income for the nine months ended September
30, 1999, was $0.24 per share, basic and diluted.

      Acquisitions

      During 1998, the Company acquired a total of four dealerships located in
Connecticut, Massachusetts, and Vermont for an aggregate price of $7.2 million
in cash plus the assumption of floor plan liabilities of $5.2 million.

      Acquisitions in the current nine months are as follows:

      In January 1999, the Company acquired all of the Common Stock of
Morristown Auto Sales, Inc., a Lincoln/Mercury dealer in New Jersey for
approximately $.5 million in cash. The transaction has been accounted for as a
purchase and the resulting goodwill was approximately $.4 million which will be
amortized over 40 years.

      In April 1999, the Company acquired its first dealership in New York,
Newburgh Toyota, for a purchase price of approximately $2.9 million in cash,
100,000 shares of Hometown Class A Common Stock and the assumption of floor plan
liabilities for the fully capitalized operation. The Company has guaranteed that
the stock issued in connection with this transaction will have a value of
$1,000,000 at the end of a two-year period. Additional shares of the Company's
Common stock will be issuable if there is a shortfall. This dealership is
expected to add approximately $50.0 million and $1.0 million, respectively, to
the Company's annualized revenues and income before income taxes for the year
ended December 1999. The transaction has been accounted for as a purchase and
the resulting goodwill was approximately $2.0 million, which will be amortized
over 40 years.

      Subsequent to September 30, 1999, the company acquired a Mazda franchise
in the Framingham, Massachusetts area. The purchase price of $700 thousand in
cash included signage, new car inventory, and parts inventory. The new franchise
will be tucked into the company's existing Bay State dealership. The transaction
has been accounted for as a purchase and the resulting goodwill was
approximately $.4 million, which will be amortized over 40 years.


                                       20
<PAGE>

             Hometown Auto Retailers, Inc. - Historical Information

      The following discussion and analysis are based on the historical
financial statements of Hometown Auto Retailers, Inc. ("Hometown"), since July
1998, and E.R.R. Enterprises, Inc. ("Shaker") collectively referred to as
Hometown. Shaker was one of the three Core Operating Companies of Hometown and
was deemed to be the accounting acquirer.

Overview

      Shaker is a holding company that operates one of the largest dealer groups
in Connecticut, consisting of Shaker Lincoln Mercury in Watertown, Connecticut;
Family Ford, Inc. and Shaker Chrysler/Plymouth Jeep/Eagle in Waterbury,
Connecticut. It also operates Lincoln Mercury Auto Care, a factory authorized
free-standing neighborhood automobile maintenance and repair center in
Naugatuck, Connecticut. Shaker is a franchised dealer for Lincoln, Mercury,
Ford, Chrysler, Plymouth and Jeep cars and trucks.

      Shaker was originally founded as Shaker Auto Service, an automobile repair
shop, in Waterbury, Connecticut in 1930. After World War II, Shaker became an
automobile dealer, ultimately being awarded the Jeep, Lincoln Mercury and Ford
franchises. Prior to the Hometown business combination, Shaker was owned and
operated by a third generation of the Shaker family.

      Shaker has diverse sources of automotive revenues, including: new car
sales, new light truck sales, used car sales, used light truck sales, used cars
purchased from the manufacturers, parts sales, service sales, including sales
from Lincoln Mercury Autocare, finance fees, insurance commissions, extended
service contract sales, documentary fees and after-market product sales. Sales
revenues include sales to retail customers, other dealers and wholesalers. Other
dealership revenue includes revenue from the sale of financing, insurance and
extended service contracts, all net of a provision for anticipated chargebacks,
and related documentary fees charged to customers.

      Shaker's gross profit varies as its automotive merchandise mix (the mix
between new vehicle sales, used vehicle sales, parts and service sales, and
other dealership revenues) changes. The gross margin realized by Shaker on the
sale of its products and services generally varies, with new vehicle sales
generally resulting in the lowest gross margin and parts and service sales
generally resulting in the highest gross margin. Revenues from related
financing, insurance and service contracts contribute a disproportionate share
of gross, operating and pre-tax margins. When Shaker's new vehicle sales
increase or decrease at a rate greater than its other revenue sources, its gross
profit margin responds inversely. Factors such as seasonality, weather,
cyclicality and manufacturers' advertising and incentives may impact Shaker's
merchandise mix and therefore affect its gross profit margin.

      Selling, general and administrative expenses consist primarily of
compensation for sales, administrative, finance and general management
personnel, rent, marketing, insurance and utilities. Interest expense consists
of interest charges on debt, including floor plan inventory financing, net of
interest credits received from certain manufacturers and interest income earned.

      The following analyses present the historical operating results of the
actual legal entities and are not on a pro forma basis. The activities of Shaker
dealerships are included for the entire period for both the three-month and year
to date analyses. Several dealerships (the balance of the Core Operating
Companies and the Acquisitions) were acquired during the third quarter of 1998.
Therefore, the 1999 results include the activities of those dealerships for the
entire period, while the 1998 results only include such activity for the period
from the time they were acquired. Muller Toyota, Good Day Chevrolet, Westwood
Lincoln/Mercury, and Brattleboro Chrysler/Plymouth are included in operating
results beginning in August 1998. Baystate Lincoln/Mercury is included in
operating results beginning in September 1998. Two other dealerships, Morristown
Auto Sales, Inc. and Newburgh Toyota were acquired in 1999. Morristown in
included in 1999 activity beginning January 1, while Newburgh is included
beginning in April.


                                       21
<PAGE>

Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998

      Revenues

      Revenues increased by $40.1 million, or 99.7%, from $40.1 million for the
three months ended September 30, 1998, to $80.2 million for the same period of
the current year. Of that increase, the dealerships acquired in 1998 accounted
for $18.6 million, while 1999 acquisitions accounted for $17.8 million. The
Shaker dealerships recorded an increase in revenues of $3.7 million, mostly
attributable to an increase in sales at the Family Ford and Jeep dealerships.

      New vehicle sales increased by $23.2 million, or 92.7%, from $25.0 million
for the three months ended September 30, 1998, to $48.2 million for the three
months ended September 30, 1999. The 1999 and 1998 acquisitions added $10.5
million and $11.2 million, respectively. The remaining $1.5 million was the
result of an increase of 36 units sold at the Shaker dealerships combined with
an increase of $1,807 in the average revenue received.

      Used vehicle sales (combined retail and wholesale) increased by $13.1
million, or 122%, from $10.7 million for the three months ended September 30,
1998, to $23.8 million for the three months ended September 30, 1998. That
increase consisted of a $5.4 million increase due to 1998 acquisitions, a $5.7
million increase due to 1999 acquisitions, and a $2.0 million increase at the
Shaker dealerships. The Shaker dealerships sold 133 more used vehicles with an
increase of $1,215 in the average revenue received.

      Parts and service revenue increased by $2.9 million, or 85.0%, from $3.4
million for the three months ended September 30, 1998, to $6.3 million for the
three months ended September 30, 1999. Acquisitions completed in 1998 and 1999
accounted for $1.3 million and $1.5 million of that increase, respectively.
Parts and service revenue at the Shaker dealerships was essentially flat.

      Other dealership revenues increased by $861 thousand, or 84.9%, from $1.0
million for the three months ended September 30, 1998, to $1.9 million for the
three months ended September 30, 1999. That increase is attributable to 1998
acquisitions ($432 thousand), 1999 acquisitions ($326 thousand), and increases
at the Shaker dealerships ($103 thousand).

      Gross Profit

      Gross profit increased $4.8 million or 89.8%, from $5.4 million for the
three months ended September 30, 1998, to $10.2 million for the same period in
the current year. 1998 acquisitions accounted for $2.4 million of that increase.
1999 acquisitions accounted for $2.0 million. Gross profit at the Shaker
dealerships increased by $377 thousand. The $4.8 million increase in gross
profit occurred in new vehicles sales ($1.2 million), used vehicle sales ($1.0
million), parts and service sales ($1.8 million), and other dealership revenues
($861 thousand).

      Amortization of Goodwill

      Goodwill amortization amounted to $150,000 in both the quarter ended
September 30, 1998 and the quarter ended September 30, 1999.

      Selling, General and Administrative Expense

      Selling, general and administrative expenses increased by $3.8 million, or
81.1%, from $4.7 million for the three months ended September 30, 1998, to $8.6
million, for the three months ended September 30, 1999. The increase was
predominately the result of the acquisitions.


                                       22
<PAGE>

      Interest Expenses, Net

      Net interest expense increased by $475 thousand from $99 thousand, for the
three months ended September 30, 1998, to $574 thousand, for the three months
ended September 30, 1999. The increase was due to increased floor plan interest
resulting from the assumption of additional floor plan debt associated with the
acquisitions, increased floor plan interest related to higher seasonal
inventories and interest on the debt incurred for the acquisition of Toyota of
Newburgh and real estate at Baystate Lincoln/Mercury.

Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998

      Revenues

      Revenues increased by $147.2 million, or 214%, from $68.7 million for the
nine months ended September 30, 1998, to $215.9 million for the nine months
ended September 30, 1999. Dealerships acquired in 1998 accounted for $98.3
million of that increase. The 1999 acquisitions accounted for $37.8 million of
that increase. The Shaker dealerships accounted for the remaining increase of
$11.1 million.

      New vehicle sales increased by $91.0 million, or 237%, from $38.5 million
for the nine months ended September 30, 1998, to $129.5 million for the nine
months ended September 30, 1999. Of that increase, $71.1 million relates to the
1998 acquisitions, $13.0 million relates to the 1999 acquisitions, and $6.3
million relates to the Shaker dealerships.

      Used vehicle sales increased by $42.4 million, or 196%, from $21.7 million
for the nine months ended September 30, 1998, to $64.1 million for the nine
months ended September 30, 1998. That increase consisted of a $26.0 million due
to the 1998 acquisitions, $12.1 million due to the 1999 acquisitions, and $4.3
million due to activity at the Shaker dealerships.

      Parts and service revenue increased by $10.7 million, or 161%, from $6.6
million for the nine months ended September 30, 1998, to $17.3 million for the
same period in the current year. The 1998 acquisitions accounted for $8.7
million of that increase. The 1999 acquisitions accounted for $2.8 million of
that increase. The Shaker dealerships accounted for the remaining increase of
$197 thousand.

      Other dealership revenues increased by $3.1 million, or 160%, from $1.9
million for the nine months ended September 30, 1998, to $5.0 million for the
nine months ended September 30, 1999. Of that increase, $2.2 million relates to
the 1998 acquisitions, $704 thousand relates to the 1999 acquisitions, and $236
thousand relates to the Shaker dealerships.

      Gross Profit

      Gross profit increased $18.3 million or 189%, from $9.7 million for the
nine months ended September 30, 1998, to $28.0 million for the nine months ended
September 30, 1999. Gross profit for the dealerships acquired in 1998 was $12.5
million, and was divided between new cars ($3.4 million), used cars ($2.4
million), parts and service ($4.6 million), and other dealership revenues ($2.1
thousand). For the 1999 acquisitions, the current year gross profit of $4.7
million can be attributed to new cars ($1.3 million), used cars ($1.1 million),
parts and service ($1.6 million), and other dealership revenues ($704 thousand).
Gross profit at the Shaker dealerships increased by $1.1 million. At Shaker,
gross profit on new cars increased $309 thousand, on used cars increased $59
thousand, on parts and service increased $463 thousand and on other dealership
revenues increased $236 thousand.

      Amortization of Goodwill

      Goodwill amortization amounted to $436 thousand in the nine months ended
September 30, 1999 compared to $150 thousand in the same period of 1998.


                                       23
<PAGE>

      Selling, General and Administrative Expense

      Selling, general and administrative expenses increased by $13.2 million,
or 124%, from $10.6 million for the nine months ended September 30, 1998, to
$23.8 million, for the nine months ended September 30, 1999. The increase was
predominately the result of the acquisitions and the additional of corporate
overhead.

      Interest Expenses, Net

      Net interest expense increased by $1.15 million, or 578%, from $199
thousand, for the nine months ended September 30, 1998, to $1.35 million for the
nine months ended September 30, 1999. The increase was due to increased floor
plan interest resulting from the assumption of additional floor plan debt
associated with the acquisitions, increased floor plan interest related to
higher seasonal inventories and interest on the debt incurred for the
acquisition of Toyota of Newburgh and real estate at Baystate Lincoln/Mercury.

Cyclicality

      The Company's operations, like the automotive retailing industry in
general, are affected by a number of factors relating to general economic
conditions, including consumer business cycles, consumer confidence, economic
conditions, availability of consumer credit and interest rates. Although the
above factors, among others, may affect the Company's business, Hometown
believes that the impact on the Company's operations of future negative trends
in such factors will be somewhat mitigated by its (i) strong parts, service and
collision repair services, (ii) variable cost salary structure, (iii) geographic
regional focus, and (iv) product diversity.

Seasonality

      The Company's operations are subject to seasonal variations, with the
second and third quarters generally contributing more revenues and operating
profit than the first and fourth quarters. This seasonality is driven primarily
by: (i) Manufacturer related factors, primarily the historical timing of major
Manufacturer incentive programs and model changeovers, (ii) weather-related
factors, which primarily affect parts and service and (iii) consumer buying
patterns.

Effects of Inflation

      Inflation did not have a significant effect on the results of operations.

Liquidity and Capital Resources

      The principal sources of liquidity include cash on hand, cash from
operations, floor plan financing, and additional debt and stock. The Company is
seeking and expects to secure from investment partners in CarDay.com permanent
capital in connection with the establishment of its e-commerce subsidiary. The
proceeds of any such financing will be utilized to repay existing short term
financing and to fund the subsidiary's initial growth.

      Cash and Cash Equivalents

      Total cash and cash equivalents at September 30, 1999 and December 31,
1998, were $0.8 million and $5.5 million, respectively for a decrease of $4.7
million in cash and cash equivalents. Operating activities used $1.4 million in
cash as discussed below, $8.5 million in cash flow from investing activities was
used primarily to acquire two dealerships in Morristown, New Jersey; and
Newburgh, New York and real estate at Baystate Lincoln / Mercury and Toyota of
Newburgh. Financing activities resulted in net cash flow of $5.2 million
(effective with the closing of the GE Capital Corporation refinancing, excess
cash of $2.5 million was used to reduce the floor plan liability).

      Cash Flows from Operations

      The Company's Statement of Cash Flows in the Consolidated Financial
Statements reflects net cash out flows from operations for the nine months ended
September 30, 1999, totaling $1.4 million, primarily attributable to an increase
of $2.2 million in receivables, $3.6 million in inventories and $2.0 million in
other current assets.

      Generally, sales of new and used automobiles result in receivables from
finance companies that are typically collected seven to ten days after the sale
is recorded. Sales occur at higher levels in September than in December, due to
seasonal factors and the introduction of vehicles for the new model year.
Therefore, contracts in transit as of September 30, 1999 was $1.8 million higher
than at December 31, 1998

      Periodic increases in inventory levels are common in the industry as
dealerships stock up for seasonal fluctuations in consumer demand. Inventory
levels at December 31st are generally at the lowest point in the year. Inventory
levels, adjusted for subsequent acquisitions, at September 30, 1999 and December
31, 1998, were $41.4 million and $37.4 million, respectively. Inventory levels
through the end of the year should continue to decline.

      Increases in other current assets, primarily a $1.2 million deposit into
an escrow account, will be reduced over the next six months as construction
begins on renovations of the company's Bay State facility to accommodate the
Mazda franchise purchased in November 1999.


                                       24
<PAGE>

      Floor Plan Financing

      On January 6, 1999, the Company completed the refinancing of its floor
plan lines of credit into one floor plan line of credit with GE Capital
Corporation. The new floor plan line of credit carries an interest rate of LIBOR
plus 160 basis points (as of September 30, 1999 the interest rate was 6.975%).

      As of September 30, 1999, the Company had unused capacity on its floor
plan financing facility of $1.1 million, given its collateral level at that
date. The collateral for this credit facility is primarily composed of new and
used cars held for sale. Since the available credit is based upon the level of
collateral, additional inventory purchases can be made in excess of the current
unused capacity. While the credit facility has a stated maximum of $85 million,
the effective borrowing limit is constrained by convenants pursuant to the
lending agreement.

      The Company also has access to a $15 million acquisition credit facility.
Use of that facility requires meeting specific conditions relating to the
financial condition of the target company and to the actual stucture of the
acquisition agreement.

Acquisitions

      During 1998, the Company acquired a total of four dealerships located in
Connecticut, Massachusetts, and Vermont for an aggregate price of $7.2 million
in cash plus the assumption of floor plan liabilities of $5.2 million.

      Acquisitions in the current nine months are as follows:

      In January 1999, the Company acquired all of the Common Stock of
Morristown Auto Sales, Inc., a Lincoln/Mercury dealer in New Jersey for
approximately $.5 million in cash. The transaction has been accounted for as a
purchase and the resulting goodwill was approximately $.6 million which will be
amortized over 40 years.

      In April 1999, the Company acquired its first dealership in New York,
Newburgh Toyota, for a purchase price of approximately $2.9 million in cash,
100,000 shares of Hometown Class A Common Stock and the assumption of floor plan
liabilities for the fully capitalized operation. The Company has guaranteed that
the stock issued in connection with this transaction will have a value of
$1,000,000 at the end of a two-year period. Additional shares of the Company's
Common stock may be issuable if there is a shortfall. This dealership is
expected to add approximately $50.0 million and $1.0 million, respectively, to
the Company's annualized revenues and income before income taxes for the year
ended December 1999. The transaction has been accounted for as a purchase and
the resulting goodwill was approximately $2.0 million, which will be amortized
over 40 years.

      Subsequent to September 30, 1999, the company acquired a Mazda franchise
in the Framingham, Massachusetts area. The purchase price of $700 thousand in
cash included signage, new car inventory, and parts inventory. The new franchise
will be tucked into the company's existing Bay State dealership. The transaction
has been accounted for as a purchase and the resulting goodwill was
approximately $.4 million, which will be amortized over 40 years.

New Accounting Pronouncements

      In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. The
statement establishes standards for the way enterprises report information about
operating segments and related disclosures about products, services, geographic
areas and major customers. This statement is effective for annual financial
statements for periods beginning after December 15, 1997. The Company considers
its business to be a single segment entity and therefore the adoption has had no
impact on the Company's consolidated financial position, results of operations
or cash flows.

      In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. The statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability and
be measured at its fair value. Additionally, any changes in the derivative's
fair value are to be recognized currently in earnings, unless specific hedge
accounting criteria are met. This statement is effective for fiscal years
beginning after June 15, 2000. The Company does not believe that adoption of
this statement will have a material impact on its financial statements.


                                       25
<PAGE>

Year 2000 Conversion

      Year 2000 issues result from the inability of computer programs or
computerized equipment to accurately calculate, store or use a date subsequent
to December 31, 1999. The erroneous date can be interpreted in a number of
different ways; typically the year 2000 is represented as the year 1900. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
Hometown has recognized the need to ensure that its computer systems, equipment
and operations will not be adversely impacted by the change to the calendar year
2000. As such, the Company has taken steps to identify potential areas of risk
and has begun addressing these in its planning, purchasing and daily operations.
The total cost of converting all internal systems, equipment and operations for
the year 2000 has not been fully quantified, but, based on current facts and
circumstances, is not expected to be material to Hometown's financial position.
With respect to acquisitions, the Company reviews an acquisition's year 2000
readiness during the due diligence process. The Company is currently reviewing
the potential adverse impact resulting from the possible failure of third party
service providers and vendors to prepare for the year 2000.

      The Company is dependent upon its dealerships' computer systems in its
daily operations. All of the Company's dealerships are, or are expected to be,
using a computer system supported by a major automobile dealership computer
system provider. The Company has contacted each of these providers and has
received assurance from the providers that their systems are, or will be, year
2000 ready. The Company is dependent upon these providers, as are most
dealerships in the United States, to address the year 2000 issue.

      The Company is primarily dependent upon the Manufacturers for the
production and delivery of new vehicles and parts. Although the Company has no
reason to believe that the Manufacturers are not year 2000 ready, the Company
has been unable to obtain written assurance from them that their systems are
year 2000 ready.

      Failure by the Company, the Manufacturers or the Company's third party
service providers and vendors to adequately address the year 2000 issue could
have a material adverse effect on the Company.

Forward Looking Statement

      When used in the Quarterly Report on Form 10Q, the words "may", "will",
"should", "expect", "believe", "anticipate", "continue", "estimate", "project",
"intend" and similar expressions are intended to identify forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act regarding events, conditions and financial trends that
may affect the Company's future plans of operations, business strategy, results
of operations and financial condition. The Company wishes to ensure that such
statements are accompanied by meaningful cautionary statements pursuant to the
safe harbor established in the Private Securities Litigation Reform Act of 1995.
Prospective investors are cautioned that any forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties and
that actual results may differ materially from those included within the
forward-looking statements as a result of various factors including the ability
of the Company to consummate, and the terms of, acquisitions. Such
forward-looking statements should, therefore, be considered in light of various
important factors, including those set forth herein and others set forth from
time to time in the Company's reports and registration statements filed with the
Securities and Exchange Commission (the "Commission"). The Company disclaims any
intent or obligation to update such forward-looking statements.


                                       26
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 6. Exhibits and Reports on Form 8-K

a.    Exhibits:

      1. 27.1 Financial Data Schedule

b.    Reports on Form 8-K:

      None.


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<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                          Hometown Auto Retailers, Inc.

November 15, 1999                       By: /s/ Joseph Shaker
------------------------                    ------------------------------------
Date                                    Joseph Shaker, President and Chief
                                        Operating Officer


November 15, 1999                       By: /s/ John Rudy
------------------------                    ------------------------------------
Date                                    John Rudy, Chief Financial and
                                        Accounting Officer


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