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 March 31, 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


                                       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.

         The accompanying statement of operations for the three months ended
March 31, 1998, and the statement of cash flows for the three months ended March
31, 1998, present the operations of E.R.R. Enterprises, Inc. ("Shaker"), one of
the Core Operating Companies which 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 accompanying historical balance sheets as of March 31, 1999 and
December 31, 1998, the statements of operations for the three months ended March
31, 1999, and the statement of cash flows for the three months ended March 31,
1999, present the consolidated operations of: (i) Shaker; and (ii) the remaining
Core Operating Companies and Acquisitions.

         The Company believes that; (i) the accompanying financial information
contains all the material adjustments necessary to fairly present its financial
position as of March 31, 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
5, "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)

                                                       March 31,   December 31,
                                  ASSETS                 1999         1998
                                                       (Note 2)     (Note 2)
                                                       ---------  ------------
Current Assets
   Cash and cash equivalents                            $ 1,681      $ 5,514
   Accounts receivable, net                               6,335        4,665
   Inventories                                           29,787       30,554
   Prepaid expenses and other current assets              2,297        1,534
                                                        -------      -------
      Total current assets                               40,100       42,267

Property and equipment, net                               2,482        2,293
Goodwill, net                                            21,344       20,879
Other assets                                                713          972
                                                        -------      -------
      Total Assets                                      $64,639      $66,411
                                                        =======      =======
         LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
   Floor plan notes payable                             $29,282      $29,624
   Accounts payable and accrued expenses                  4,041        4,798
   Current maturities of long-term debt                     556          946
   Other current bank borrowings                            500        1,200
                                                                       
                                                        -------      -------
      Total current liabilities                          34,379       36,568
Long-term debt                                              705          375
Due to related parties                                      174          238
                                                        -------      -------
       Total liabilities                                 35,258       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, 2,040,000 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                            25,194       25,194
   Retained earnings                                      4,181        4,030
                                                        -------      -------
      Total stockholders' equity                         29,381       29,230
                                                        -------      -------
      Total liabilities and stockholders' equity        $64,639      $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
                                                               Ended March 31,
                                                          -------------------------
                                                              1999          1998
                                                           ----------    ----------
<S>                                                        <C>           <C>       
Revenues
   New vehicle sales                                       $   35,599    $    5,967
   Used vehicle sales                                          16,776         5,723
   Parts and service sales                                      4,908         1,613
   Other dealership revenues, net                               1,347           441
                                                           ----------    ----------
      Total revenues                                           58,630        13,744

Cost of sales
   New vehicle sales                                           33,663         5,590
   Used vehicle sales                                          15,270         5,137
   Parts and service sales                                      2,091           885
                                                           ----------    ----------
Cost of sales                                                  51,024        11,612
                                                           ----------    ----------
      Gross profit                                              7,606         2,132

Amortization of goodwill                                          136            --
Selling, general and administrative
   expenses                                                     6,925         4,194
                                                           ----------    ----------
      Income (loss) from operations                               545       (2,062)

Other expense 
   Interest expense, net                                        (293)          (57)
   Other expense, net                                             (1)           (6)
                                                           ----------    ----------
      Income (loss) before taxes                                  251        (2,125)

Provision (benefit) for income taxes                              100         (850)
                                                           ----------    ----------
      Net income (loss)                                    $      151    $   (1,275)
                                                           ==========    ==========
Earnings (loss) per share, basic and diluted (Note 3)      $     0.03    $    (0.68)
Weighted average shares (Note 3)                            5,800,000     1,880,000
</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 Three Months ended
                                                                                             March 31,
                                                                                  ------------------------------
                                                                                   1999                   1998
                                                                                  -------                -------
<S>                                                                               <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                                 $   151                $(1,275)
Adjustments to reconcile net income (loss)
   to net cash provided by (used in) operating activities -
   Depreciation and amortization                                                      238                     46
   Changes in assets and liabilities:
      Accounts receivable, net                                                       (724)                  (335)
      Inventories                                                                   2,984                   (712)
      Prepaid expenses and other current assets                                      (481)                  (228)
      Other assets                                                                    (34)                    99
      Floor plan notes payable                                                       (143)                   656
      Accounts payable, accrued expenses and accrued compensation.                 (1,278)                 1,757
                                                                                  -------                -------
   Net cash provided by (used in) operating activities                                713                      8
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                                (113)                    (3)
   Proceeds from sales of property and equipment                                       25                     26
   Acquisition, net of cash acquired                                                 (423)                    --
                                                                                  -------                -------
   Net cash provided by (used in) investing activities                               (511)                    23
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from long-term borrowings                                                  34                     --
   Principal payments of long-term debt                                              (621)                   (25)
   Other current bank borrowings, net of repayments                                (1,200)                    15
   Payments of floor plan notes                                                    (2,538)
   Due from/to related parties                                                        290                     48
                                                                                  -------                -------
   Net cash provided by (used in) financing activities                             (4,035)                    38
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                               (3,833)                    69
CASH AND CASH EQUIVALENTS, beginning of period                                      5,514                  3,539
                                                                                  -------                -------
CASH AND CASH EQUIVALENTS,  end of period                                         $ 1,681                $ 3,608
                                                                                  =======                =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid for - Interest                                                         $   554                $    57
 Cash paid for - Taxes                                                                390                     --
</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.

         The accompanying consolidated statements of operations and cash flows
for the period ended March 31, 1998 present the operations of E.R.R.
Enterprises, Inc, and Subsidiaries ("Shaker"), one of the Core Operating
Companies which 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 accompanying consolidated balance sheets as of March 31, 1999 and
December 31, 1998, and the consolidated statements of operations, and cash flows
for the period ended March 31, 1999, presents the consolidated operations of:
(i) Shaker for all periods; and (ii) the remaining Core Operating Companies, the
Acquisitions and any additional acquisitions, effective with the 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.

         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. 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.


                                       8
<PAGE>

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


         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, 1999. 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. As of
March 31, 1999 and 1998, the Company does not have any potentially dilutive
securities.

         "Earnings (loss) per share" and "Weighted average shares", for the
quarter ended March 31, 1999, represents the weighted average of the outstanding
Hometown shares. The "Earnings (loss) per share" and "Weighted average shares",
for the quarter ended March 31, 1998, are the weighted average of the
outstanding equivalent Hometown shares of Shaker only.

         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:

                                                    3/31/99     12/31/98
                                                   ---------   ---------
                                                       (in thousands)
         New Vehicles                               $ 20,362    $ 21,759
         Used Vehicles                                 7,963       7,209

         Parts, accessories and other                  1,462       1,586
                                                    --------    --------
            Total Inventories                       $ 29,787    $ 30,554
                                                    ========    ========


                                       9
<PAGE>

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

5.       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. and the Acquisitions were acquired for
cash.

         The 1998 pro forma combined data presented on the following pages
represents a summation of certain data on an historical basis on the assumption
that the combination of the Core Operating Companies, the Acquisitions, other
acquisitions, and the Offering had occurred on January 1, 1998, 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.

         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 $0.5 in cash. The transaction has been accounted for as a purchase
and the resulting excess of purchase price over net tangible assets acquired was
approximately $0.6 million which will be amortized over 40 years. The March 31,
1998 pro forma information assumes that the acquisition occurred on January 1,
1998.

         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. 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.


                                       10
<PAGE>

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

5.       BUSINESS COMBINATIONS (Continued):

         The following table of summary pro forma unaudited financial data
presents the unaudited consolidated results of operations for the three months
ended March 31, 1999, and for the three months ended March 31, 1998, certain
combined pro forma financial data as if the combinations of the Core Operating
Companies, the Acquisitions, other acquisitions, and the Offering had occurred
as of January 1, 1998.

<TABLE>
<CAPTION>
                                                       For the Three Months
                                                         Ended March 31,
                                               -----------------------------------
                                                   1999                   1998
                                                                       (Pro forma)
                                               --------------      ---------------

<S>                                            <C>                     <C>
Income Statement Data:
Revenues
   New vehicle sales                           $    35,599             $    34,617
   Used vehicle sales                               16,776                  20,716
   Parts and service sales                           4,908                   5,912
   Other dealership revenues, net                    1,347                   1,510
                                               -----------             -----------
      Total revenues                                58,630                  62,755
Cost of sales                                       51,024                  54,415
                                               -----------             -----------
      Gross profit                                   7,606                   8,340
Amortization of goodwill                               136                     108
Selling, general and administrative
      expenses                                       6,925                   6,492
                                               -----------             -----------
      Income from operations                           545                   1,740

Other expense
  Interest expense, net                               (293)                   (291)
  Other expense, net                                    (1)                     (6)
                                               -----------             -----------
      Income before taxes                              251                   1,443

Provision for income taxes                             100                     577
                                               -----------             -----------
      Net income                               $       151             $       866
                                               ===========             ===========
Earnings per share, basic and
      diluted (Note 3)                         $      0.03             $      0.15

Weighted average shares                          5,800,000               5,800,000

Other Data:
Retail new vehicles sold                             1,361                   1,299
Retail used vehicles sold                            1,036                   1,133
</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 5, "Business Combinations". The discussion on
"Hometown Auto Retailers, Inc." 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 ended March 31, 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, other 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 ended March
31, 1999 and March 31, 1998 (Pro forma), are as follows:

                                                For the three months ended
                                                        March 31,
                                                    1999           1998
                                                                (Pro forma)
                                                 -----------   ------------
                                                     (in thousands)
New vehicle                                      $35,599         $34,617
Used vehicle - retail                             14,410          15,555
Used vehicle - wholesale                           2,366           5,161
Parts and service                                  4,908           5,912
F&I and other                                      1,347           1,510
                                                 -------         -------
Total Revenue                                    $58,630         $62,755
                                                 =======         =======

         The units sold by category for Hometown for the quarters ended March
31, 1999 and March 31, 1998 (Pro forma), are as follows:

                                                For the three months ended
                                                        March 31,
                                                   1999            1998
                                                                (Pro forma)
                                                 -----------   ------------
New vehicle                                        1,361           1,299
Used vehicle - retail                              1,036           1,133
Used vehicle - wholesale                             625           1,043
                                                 -------         --------
Total units sold                                   3,022           3,475
                                                 =======         ========


                                       13
<PAGE>

         The new vehicle revenue by manufacturer for Hometown for the quarters
ended March 31, 1999 and March 31, 1998 (Pro forma), are as follows:

                                                For the three months ended
                                                        March 31,
                                                  1999            1998
                                                               (Pro forma)
                                                 -------       -----------
                                                     (in thousands)
Ford Motor                                       $22,852         $22,696
Chrysler                                           4,657           4,788
Toyota Motor                                       6,181           4,598
GM                                                 1,450           2,245
All Other                                            459             290
                                                 -------         -------
Total Revenue                                    $35,599         $34,617
                                                 =======         =======


         The new vehicle units sold by manufacturer for Hometown for the
quarters ended March 31, 1999 and March 31, 1998 (Pro forma), are as follows:

                                                For the three months ended
                                                        March 31,
                                                  1999            1998
                                                               (Pro forma)
                                                 -------       -----------
Ford Motor                                           828             763
Chrysler                                             181             211
Toyota Motor                                         268             201
GM                                                    60             109
All Other                                             24              15
                                                  ------           -----
Total units sold                                   1,361           1,299
                                                  ======           =====


                                       14
<PAGE>

         The gross profit by category for Hometown for the quarters ended March
31, 1999 and March 31, 1998 (Pro forma), are as follows:

                                               For the three months ended
                                                        March 31,
                                                  1999            1998
                                                               (Pro forma)
                                                 -----------   ----------
                                                     (in thousands)
New vehicle                                      $ 1,936         $ 2,023
Used vehicle - retail                              1,543           2,000
Used vehicle - wholesale                             (37)             45
Parts and service                                  2,817           2,762
F&I and other                                      1,347           1,510
                                                 -------         -------
Total Gross Profit                               $ 7,606         $ 8,340
                                                 =======         =======


         The gross profit percent of revenue by category for Hometown for the
quarters ended March 31, 1999 and March 31, 1998 (Pro forma), are as follows:

                                                For the three months ended
                                                        March 31,

                                                  1999            1998
                                                               (Pro forma)
                                                 -------       ----------
New vehicle                                         5.4%            5.8%
Used vehicle - retail                              10.7%           12.9%
Used vehicle - wholesale                          (1.6)%             .9%
Parts and service                                  57.4%           46.7%
F&I and other                                     100.0%          100.0%
Total Gross Profit percent                         13.0%           13.3%

Three months ended March 31, 1999 compared with pro forma three months ended
March 31, 1998.

         Revenue

         Total Revenue decreased $4.2 million, or 6.7% from $62.8 million for
three months ended March 31, 1998 to $58.6 million for three months ended March
31, 1999.

         This reduction primarily reflects a decline in used vehicle sales
related to the continuing soft used car market in the Northeast. This condition
was created by reductions of new car pricing by manufacturers which strengthened
demand for lower margin new cars and reduced sales of higher margin used cars.
In addition, the Company implemented its inventory management strategy whereby
used cars are transferred between dealerships rather than being sold at
wholesale which can result in gross profit losses.


                                       15
<PAGE>

         Revenue from the sale of used vehicles at retail decreased $1.2
million, or 7.7%, from $15.6 million for the quarter ended March 31, 1998, to
$14.4 million for the quarter ended March 31, 1999. Reflecting the continuing
soft used car market in the Notheast, the decrease consisted of a decline in
unit sales of used vehicles at retail of 97 vehicles offset by an increase in
average revenue per vehicle of $181. Revenue from the sale of used vehicles at
wholesale decreased $2.8 million, or 53.8%, from $5.2 million for the quarter
ended March 31, 1998, to $2.4 million for the quarter ended March 31, 1999. The
decrease consisted of a decline in unit sales of used vehicles at wholesale of
418 vehicles along with a decrease in revenue per vehicle of $1,163.

         Revenue from the sale of new vehicles increased $1.0 million, or 2.8%
from $34.6 million for the three months ended March 31, 1998 to $35.6 million
for three months ended March 31, 1999. The increase consisted of an increase in
unit sales of new vehicles of 62, offset by a decrease in average revenue per
vehicle of $493. Revenues from sales of Lincoln/Mercury cars (which is the
highest selling brand in the Company) decreased $0.5 million which consisted of
an increase in unit sales of 41, offset by a decrease in average revenue per
vehicle of $2,808.

         Parts and service sales revenue decreased $1.0 million, or 16.9% from
$5.9 million for the three months ended March 31, 1998, to $4.9 million for the
three months ended March 31, 1999. The decrease was primarily attributable to a
decline in warranty and reconditioning work.

         Finance, Insurance, Extended Service and other dealership revenues
decreased $0.2 million, or 13.3% from $1.5 million for the three months ended
March 31, 1998 to $1.3 million for the three months ended March 31, 1999. The
decrease was primarily attributable to the decline in sales of new and used
vehicles.


         Gross Profit

         Total gross profit decreased $0.7 million, or 8.4%, from $8.3 million
for the three months ended March 31, 1998, to $7.6 million for the three months
ended March 31, 1999.

         Gross profit on the sale of new vehicles decreased $0.1 million, or
5.0%, from $2.0 million for the three months ended March 31, 1998, to $1.9
million for the three months ended March 31, 1999. The decline was due to a
decrease of $136 in the average gross profit per unit offset by an increase in
units sold of 62. Gross profit as a percent of revenue for new vehicles
decreased from 5.8% for the three months ended March 31, 1998, to 5.4% for the
three months ended March 31, 1999. The decline in average per unit selling price
of Lincoln/Mercury cars referred to above was a significant factor in the
decline in gross profit percentage.

         Gross profit on the sale of used vehicles at retail decreased $0.5
million, or 25.0%, from $2.0 million for the three months ended March 31, 1998,
to $1.5 million for the three months ended March 31, 1999. The decline was due
to a drop in the sale of used vehicle units of 97, combined with a decrease of
$275 in the average gross profit per unit. Gross profit as a percent of revenue
for used vehicles at retail decreased from 12.9% for the three months ended
March 31, 1998, to 10.7% for the three months ended March 31, 1999.

         Parts and service gross profit remained approximately the same for the
three months ended March 31, 1998, compared to the three months ended March 31,
1999. Price increases offset the effect of the decline in revenues.

         Selling, General and Administrative Expenses


                                       16
<PAGE>

         On a pro forma basis, after adjustment, selling, general and
administrative expenses increased $0.4 million, or 6.1%, from $6.5 million for
the three months ended March 31, 1998, to $6.9 million for the three months
ended March 31, 1999. Increased advertising expenditures in support of a
continuing soft used car market and increased corporate expenses related to
operation as a public company were the primary reasons for the increase.

         Net Interest Expense

         After pro forma adjustments were reflected for the quarter ended March
31, 1998 interest expense was approximately the same as the quarter ended March
31, 1999.

         Other Income

         Other income was insignificant in both quarters presented.

         Pre-Tax Income

         Income before taxes decreased $1.1 million, or 78.6%, from $1.4
million for the three months ended March 31, 1998, to $0.3 million for the three
months ended March 31, 1999. The decrease was primarily due to the decline in
gross profit of $0.7 million, increased selling, general and administrative
expenses of $0.4 million. Pre-tax income as a percent of total revenue is 2.3%
for the three months ended March 31, 1998, and 0.4% for the three months ended
March 31, 1999.

         Provision (benefit) for income tax

         The effective income tax rate was 40% in both periods. The rate for the
quarter ended March 31, 1999 was based on current forecasts of income before
taxes, and current forecasts of permanent differences between tax and book
income.

         Net Income

         Net income decreased $0.7 million, or 77.8%, from $0.9 million for the
quarter ended March 31, 1998, to $0.2 million for the quarter ended March 31,
1999. The decrease was primarily due to the decline in gross profit of $0.7
million, increased selling, general and administrative expenses of $0.5 million,
offset by a decrease in the Provision for Income Taxes of $0.5 million.


         Earnings Per Share, Basic and Diluted

         On a pro forma combined basis, the earnings per share for the three
months ended March 31, 1999 and 1998 are $.03 and $.15, respectively. As of
March 31, 1999 and 1998, the Company does not have any potentially dilutive
securities.

         Weighted Average Shares

         On a pro forma combined basis, the weighted average shares for the
three months ended March 31, 1999 and 1998 are both 5,800,000 shares. The
weighted average shares represent the sum of the outstanding Class A shares
(2,040,000) and Class B shares (3,760,000).


                                       17
<PAGE>

Acquisitions

         Since the close of the public offering in July 1998, the Company has
acquired five dealerships located in Connecticut, Massachusetts, New Jersey and
Vermont for an aggregate price of $7.6 million in cash plus the assumption of
floor plan liabilities of $7.6 million.

          In April 1999, the Company acquired its first dealership, Newburgh
Toyota, in New York for a purchase price of $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. 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.

                          Hometown Auto Retailers, Inc.

         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's Lincoln Mercury, Inc. in Watertown
Connecticut; Family Ford, Inc. and Family Rental, Inc. in Waterbury,
Connecticut; and Shaker's Jeep/Eagle, Inc. in Waterbury, Connecticut. It also
operates Lincoln Mercury Autocare, Inc., a factory authorized free-standing
neighborhood automobile maintenance and repair center in Naugatuck, Connecticut.
Shaker is a franchised dealer for Lincoln, Mercury, Ford, 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. Currently, Shaker is 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 from
Lincoln Mercury Autocare, Inc., 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.


                                       18
<PAGE>

         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.

Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998

         Revenues

         Revenues increased by $44.9 million, or 327.7%, from $13.7 million for
the three months ended March 31, 1998, to $58.6 million for the three months
ended March 31, 1999. Most of the increase was due to the acquisition of eight
dealerships since the initial public offering completed on July 31, 1998.

         New vehicle sales increased by $29.6 million, or 493.3%, from $6.0
million for the three months ended March 31, 1998, to $35.6 million for the
three months ended March 31, 1999. Of that increase $2.9 million was the result
of an increase of 105 units sold at the Shakers dealerships combined with an
increase of $1,444 in the average revenue received. The remaining $26.7 million
increase was due to the acquisitions.

         Used vehicle sales increased by $11.1 million, or 194.7%, from $5.7
million for the three months ended March 31, 1998, to $16.8 million for the
three months ended March 31, 1998. That increase consisted of a $10.8 million
increase due to the acquisitions combined with an increase of $0.3 million at
the Shaker dealerships. The Shaker dealerships sold 84 fewer used vehicles
offset by an increase of $2,013 in the average revenue received.

         Parts and service revenue increased by $3.3 million, or 206.3%, from
$1.6 million for the three months ended March 31, 1998, to $4.9 million for the
three months ended March 31, 1999. Parts and service revenue at the Shaker
dealerships were essentially flat and the increase resulted primarily from the
acquisitions.

         Other dealership revenues increased by $1.0 million, or 250.0%, from
$0.4 million for the three months ended March 31, 1998, to $1.4 million for the
three months ended March 31, 1999. Other dealership revenues at the Shaker
dealerships increased $0.1 million and the balance, $0.9 million, of the
increase resulted from the acquisitions.

         Gross Profit

         Gross profit increased $5.5 million or 261.9%, from $2.1 million for
the three months ended March 31, 1998, to $7.6 million for the three months
ended March 31, 1999. Gross profit at the Shaker dealerships increased by $0.3
million with increased new car sales being offset by reduced used car sales
along with reduced average gross profit per unit related to used car sales. The
remaining $5.2 million increase was due to the acquisitions.

         Selling, General and Administrative Expense

         Selling, general and administrative expenses increased by $2.7 million,
or 64.3%, from $4.2 million for the three months ended March 31, 1998, to $6.9
million, for the three months ended March 31, 1999. The increase was impacted by
a one time bonus distributed to the owner employees of Shaker of $2.5 million in
the quarter ended March 31, 1998 combined with increased expenses at Shaker of
$0.3 million (including increased advertising of $0.1 million, increased
corporate expenses of $0.5 million. The remaining difference, an increase of
$4.9 million, resulted from the acquisitions.


                                       19
<PAGE>

         Interest Expenses, Net

         Net interest expense increased by $0.2 million, or 200.0%, from $0.1
million, for the three months ended March 31, 1998, to $0.3 million for the
three months ended March 31, 1999. The increase was due primarily to increased
floor plan interest resulting from the assumption of additional floor plan debt
associated with the acquisitions.

         Provision (benefit) for income tax

         The effective income tax rate was 40% in both periods. The rate for the
quarter ended March 31, 1999 was based on current forecasts of income before
taxes, and current forecasts of permanent differences between tax and book
income.

         Net Income (loss)

         Net Income changed from a net loss of $1.3 million for the quarter
ended March 31, 1998, to net income of $0.2 million for the quarter ended March
31, 1999, a change of $1.1 million. The after tax effect of the increased gross
profit (primarily from acquisitions), the after tax effect of the one time
bonuses in the quarter ended March 31, 1998, the after tax effect of increased
advertising, increased corporate expenses, increased interest and amortization
of goodwill were all factors related to this change.

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.


                                       20
<PAGE>

Liquidity and Capital Resources

         The principal sources of liquidity are cash on hand, cash from
operations and floor plan financing.

         Cash and Cash Equivalents

         Total cash and cash equivalents at March 31, 1999 and December 31,
1998, were $1.7 million and $5.5 million, respectively for a decrease of $3.8
million in cash and cash equivalents. Operating activities provided $0.7 million
in cash while $0.4 million was used to acquire a dealership in Morristown, New
Jersey; $0.1 million was need to purchase equipments, and $4.0 million was used
to reduce debt (effective with the closing of the GE Capital Corporation
refinancing, excess cash of $2.7 million was used to reduce the floor plan
liability).

         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.

Acquisitions

         Since the close of the public offering in July 1998, the Company has
acquired five dealerships located in Connecticut, Massachusetts, New Jersey and
Vermont for an aggregate price of $7.6 million in cash plus the assumption of
floor plan liabilities of $7.6 million.

         In April 1999, the Company acquired its first dealership in New York,
Newburgh Toyota, for a purchase price of $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. 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.

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, 1999. The Company does not believe that adoption of
this statement will have a material impact on its financial statements.


                                       21
<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.


                                       22
<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.

                                   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.


         May 14, 1999                        By: /s/ Joseph  Shaker
         ------------------------            ----------------------------------
         Date                                Joseph Shaker, President and Chief
                                             Operating Officer


         May 14, 1999                        By: /s/ John Rudy
         ------------------------            ----------------------------------
         Date                                John Rudy, Chief Financial and
                                             Accounting Officer


                                       23