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, 2004


                        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.)

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

                                 (860) 945-6900
               (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  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_|   No |X|

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          3,870,137
Common Stock, Class B, par value $.001 per share          3,519,252
<PAGE>

                                      INDEX

                                                                            Page
PART I.  FINANCIAL INFORMATION

ITEM 1.  Consolidated Balance Sheets at September 30, 2004 (Unaudited)
         and December 31, 2003 (Audited)                                       3
         Unaudited Consolidated Statements of Operations for the three
         and nine months ended September 30, 2004 and 2003                     4
         Unaudited Consolidated Statements of Stockholders' Equity for the
         nine months ended September 30, 2004 and 2003                         5
         Unaudited Consolidated Statements of Cash Flows for the nine
         months ended September 30, 2004 and 2003                              6
         Notes to Unaudited Consolidated Financial Statements                  7

ITEM 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                            14

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk           23

ITEM 4.  Controls and Procedures                                              23

PART II. OTHER INFORMATION

ITEM 1.  Legal Proceedings                                                    24

ITEM 6.  Exhibits and Reports on Form 8-K                                     24

SIGNATURES                                                                    25

CERTIFICATIONS                                                                26

                           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 Hometown Auto  Retailers,  Inc.  ("Hometown")  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.  Hometown'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 Hometown.  Although Hometown 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,  the  inclusion  of such  information  should not be  regarded  as a
representation  by Hometown or any other person that the objectives and plans of
Hometown  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."


                                       2
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC.
                           CONSOLIDATED BALANCE SHEETS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                        September 30,   December 31,
                                                ASSETS                      2004            2003
                                                                         (Unaudited)
                                                                        ------------    ------------
<S>                                                                        <C>            <C>
Current Assets:
   Cash and cash equivalents                                               $  5,224       $  5,639
   Accounts receivable, net                                                   7,248          6,058
   Inventories, net                                                          38,686         37,774
   Prepaid expenses and other current assets                                    672            625
   Deferred and prepaid income taxes                                          1,216          1,349
                                                                           --------       --------
     Total current assets                                                    53,046         51,445

Property and equipment, net                                                  13,793         12,678
Other assets                                                                  1,067          1,141
                                                                           --------       --------
     Total assets                                                          $ 67,906       $ 65,264
                                                                           ========       ========

                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Floor plan notes payable                                                $ 38,664       $ 38,003
   Accounts payable and accrued expenses                                      5,699          5,798
   Current maturities of long-term debt and capital lease obligations         1,148            996
   Deferred revenue                                                             818            609
                                                                           --------       --------
     Total current liabilities                                               46,329         45,406

Long-term debt and capital lease obligations                                 12,598         12,076
Long-term deferred income taxes                                                 125            125
Other long-term liabilities and deferred revenue                                764            729
                                                                           --------       --------
     Total liabilities                                                       59,816         58,336

Commitments and Contingencies

Stockholders' Equity
   Preferred stock, $.001 par value, 2,000,000 shares
   authorized, no shares issued and outstanding                                  --             --
   Common stock, Class A, $.001 par value, 12,000,000 shares
   authorized, 3,870,137 and 3,655,853 shares issued and outstanding,
   respectively                                                                   4              4
   Common stock, Class B, $.001 par value, 3,760,000 shares
   authorized, 3,519,252 shares issued and outstanding                            3              3
   Additional paid-in capital                                                30,017         29,760
   Accumulated deficit                                                      (21,934)       (22,839)
                                                                           --------       --------
     Total stockholders' equity                                               8,090          6,928
                                                                           --------       --------
     Total liabilities and stockholders' equity                            $ 67,906       $ 65,264
                                                                           ========       ========
</TABLE>

         The accompanying notes are an integral part of these unaudited
                       consolidated financial statements.


                                       3
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC.
                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                       For the Three Months                For the Nine Months
                                                        Ended September 30,                Ended September 30,
                                                  -----------------------------       -----------------------------
                                                     2004              2003              2004              2003
                                                  -----------       -----------       -----------       -----------
<S>                                               <C>               <C>               <C>               <C>
Revenues
   New vehicle sales                              $    44,291       $    52,786       $   130,182       $   139,668
   Used vehicle sales                                  16,943            16,888            49,633            52,021
   Parts and service sales                              5,984             6,220            18,098            18,655
   Other, net                                           2,064             2,286             5,969             6,259
                                                  -----------       -----------       -----------       -----------
      Total revenues                                   69,282            78,180           203,882           216,603
                                                  -----------       -----------       -----------       -----------
Cost of sales
   New vehicle                                         41,474            49,192           121,789           130,420
   Used vehicle                                        15,359            15,243            44,921            47,006
   Parts and service                                    2,697             2,830             8,269             8,463
                                                  -----------       -----------       -----------       -----------
      Total cost of sales                              59,530            67,265           174,979           185,889
                                                  -----------       -----------       -----------       -----------
      Gross profit                                      9,752            10,915            28,903            30,714

Selling, general and administrative expenses            8,280             9,174            25,367            26,729
                                                  -----------       -----------       -----------       -----------
      Income from operations                            1,472             1,741             3,536             3,985

   Interest income                                         53                22               134                36
   Interest (expense)                                    (802)             (715)           (2,487)           (2,292)
   Other income                                            63                 5                66               956
   Other (expense)                                         (5)               --                (9)               (3)
                                                  -----------       -----------       -----------       -----------
Pre-tax income                                            781             1,053             1,240             2,682

      Provision for income taxes                          211               221               335               888
                                                  -----------       -----------       -----------       -----------
Net income                                        $       570       $       832       $       905       $     1,794
                                                  ===========       ===========       ===========       ===========

Earnings per share, basic                         $      0.08       $      0.12       $      0.12       $      0.25
                                                  ===========       ===========       ===========       ===========

Earnings per share, diluted                       $      0.08       $      0.12       $      0.12       $      0.25
                                                  ===========       ===========       ===========       ===========

Weighted average shares outstanding, basic          7,389,389         7,175,105         7,252,529         7,175,105
Weighted average shares outstanding, diluted        7,493,208         7,212,067         7,429,892         7,187,426
</TABLE>

         The accompanying notes are an integral part of these unaudited
                       consolidated financial statements.


                                       4
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC.
            UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                     Class A                     Class B                              Retained
                                   Common Stock                Common Stock            Additional     Earnings         Total
                              ----------------------      -----------------------        Paid-in    (Accumulated   Stockholders'
                               Shares        Amount        Shares         Amount         Capital      Deficit)        Equity
                              --------      --------      --------       --------      ----------   ------------   -------------
<S>                              <C>        <C>              <C>         <C>            <C>           <C>            <C>
Balance at
    December 31, 2002            3,564      $      3         3,611       $      4       $ 29,760      $(25,217)      $  4,550
Conversion of Class B
Common to Class A Common            33             1           (33)            (1)            --            --             --
Net income                          --            --            --             --             --         1,794          1,794
                              --------      --------      --------       --------       --------      --------       --------
Balance at
 September 30, 2003              3,597      $      4         3,578       $      3       $ 29,760      $(23,423)      $  6,344
                              ========      ========      ========       ========       ========      ========       ========

Balance at
   December 31, 2003             3,656      $      4         3,519       $      3       $ 29,760      $(22,839)      $  6,928
Exercise of Warrants               214            --            --             --            257            --            257
Net income                          --            --            --             --             --           905            905
                              --------      --------      --------       --------       --------      --------       --------
Balance at
September 30, 2004               3,870      $      4         3,519       $      3       $ 30,017      $(21,934)      $  8,090
                              ========      ========      ========       ========       ========      ========       ========
</TABLE>

         The accompanying notes are an integral part of these unaudited
                       consolidated financial statements.


                                       5
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC.
                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                          For the Nine Months ended
                                                                                 September 30,
                                                                          -------------------------
                                                                             2004          2003
                                                                           -------       -------
<S>                                                                        <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                 $   905       $ 1,794
Adjustments to reconcile net income to net cash
   provided by operating activities:
   Depreciation and amortization                                               950         1,010
  (Gain) loss on sale/disposal of sales and service franchise and
    property and equipment                                                       8          (939)
   Deferred income taxes                                                       335           829
   Changes in assets and liabilities:
      Accounts receivable, net                                              (1,190)       (2,095)
      Inventories, net                                                         (85)        5,716
      Prepaid expenses and other current assets                                (47)          (65)
      Prepaid taxes                                                           (202)         (316)
      Other assets                                                               8            37
      Floor plan notes payable                                                 661        (4,257)
      Accounts payable and accrued expenses                                    (99)        1,747
      Deferred revenue - current                                               209           109
      Other long-term liabilities and deferred revenue                          35            11
                                                                           -------       -------
   Net cash provided by operating activities                                 1,488         3,581

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                                       (1,821)         (593)
   Proceeds from sale of sales and service franchise and property and
        equipment                                                               --           942
                                                                           -------       -------
   Net cash provided by (used in) investing activities                      (1,821)          349

CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments of long-term debt and capital lease obligations       (1,707)       (1,868)
   Proceeds from long-term borrowings                                        1,368            55
   Exercise of warrants                                                        257            --
                                                                           -------       -------
   Net cash (used in) financing activities                                     (82)       (1,813)

Net increase (decrease) in cash and cash equivalents                          (415)        2,117
CASH AND CASH EQUIVALENTS, beginning of period                               5,639         3,624
                                                                           -------       -------
CASH AND CASH EQUIVALENTS, end of period                                   $ 5,224       $ 5,741
                                                                           =======       =======

 Cash paid for - Interest                                                  $ 2,485       $ 2,325
 Cash paid for - Taxes                                                     $   202       $   316
 Purchases financed by capital lease obligations                           $ 1,013       $   958
</TABLE>

         The accompanying notes are an integral part of these unaudited
                       consolidated financial statements.


                                       6
<PAGE>

                          HOMETOWN AUTO RETAILERS, INC.
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.    BUSINESS AND ORGANIZATION

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

      Hometown  sells new and used cars and light trucks,  provides  maintenance
and repair services,  sells  replacement  parts and provides related  financing,
insurance  and  service  contracts  through  9  franchised   dealerships  and  1
stand-alone  service  facility,  located in New Jersey,  New York,  Connecticut,
Massachusetts  and Vermont.  Hometown's  dealerships  offer 9 American and Asian
automotive brands including  Chevrolet,  Chrysler,  Dodge, Ford, Jeep,  Lincoln,
Mazda, Mercury and Toyota.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Basis of Presentation

      The accompanying  consolidated balance sheet as of September 30, 2004, the
consolidated  statements  of  operations  for the  three and nine  months  ended
September 30, 2004 and 2003, the consolidated statements of stockholders' equity
and  the  consolidated  statements  of cash  flows  for the  nine  months  ended
September  30,  2004  and  2003,  are  unaudited.   The  consolidated  financial
statements include all significant majority-owned subsidiaries.  All significant
intercompany balances and transactions have been eliminated in consolidation.

      In the opinion of management,  all adjustments necessary to present fairly
the financial  position,  results of  operations  and cash flows for the interim
periods were made.  Certain  reclassifications  have been made to the prior year
amounts to conform to the current  year  presentation.  Due to  seasonality  and
other factors, the results of operations for interim periods are not necessarily
indicative of the results that will be realized for the entire year.

      Certain  information  and  footnote  disclosures,   normally  included  in
financial  statements  prepared in accordance with generally accepted accounting
principles, were omitted.  Accordingly,  these consolidated financial statements
should be read in conjunction  with the  consolidated  financial  statements and
notes  thereto  for the year ended  December  31,  2003,  which are  included in
Hometown's filing of its annual report on Form 10-K.

      The financial  statements  have been prepared in conformity with generally
accepted  accounting  principles  and,  accordingly,  include  amounts  based on
estimates and judgments of  management.  Actual  results could differ from those
estimates.

      Stock-based Compensation

      At September 30, 2004, Hometown has one stock-based employee  compensation
plan, the 1998 Stock Option Plan (the "Stock Option  Plan").  As allowed by SFAS
148,  Hometown  has  elected  not to  use  one of  the  alternative  methods  of
transition  available  for a voluntary  change to the fair value based method of
accounting for stock-based  employee  compensation.  Hometown  accounts for this
plan under the recognition and measurement  principles of Accounting  Principles
Board ("APB") Opinion No. 25,  "Accounting  for Stock Issued to Employees",  and
related Interpretations.  No stock-based employee compensation cost is reflected
in net income,  as all options  granted under those plans had an exercise  price
equal to or greater than the market value of the underlying  common stock on the
date of grant.  The  following  table  illustrates  the effect on net income and
earnings  per  share if the  company  had  applied  the fair  value  recognition
provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation",
to stock-based employee compensation.


                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                        Three Months Ended              Nine Months Ended
                                                           September 30,                  September 30,
                                                       2004            2003            2004            2003
                                                     ---------       ---------       ---------       ---------
                                                                           (in thousands)
<S>                                                  <C>             <C>             <C>             <C>
Net income, as reported                              $     570       $     832       $     905       $   1,794
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax
effects (1)                                                 (7)            (10)            (21)            (22)
                                                     ---------       ---------       ---------       ---------
Pro forma net income                                 $     563       $     822       $     884       $   1,772
                                                     =========       =========       =========       =========
Earnings per share:
Basic, as reported                                   $    0.08       $    0.12       $    0.12       $    0.25
Basic, pro forma                                     $    0.08       $    0.11       $    0.12       $    0.25

Diluted, as reported                                 $    0.08       $    0.12       $    0.12       $    0.25
Diluted, pro forma                                   $    0.08       $    0.11       $    0.12       $    0.25
</TABLE>

(1)   All awards refer to awards granted, modified, or settled in fiscal periods
      since plan inception in 1998; that is, awards for which the fair value was
      required to be measured under Statement 123.

      New Accounting Pronouncements

      In January 2003, the FASB issued  Interpretation No. 46,  Consolidation of
Variable Interest Entities.  The objective of this  interpretation is to provide
guidance on how to identify a variable  interest  entity  ("VIE") and  determine
when  the  assets,  liabilities,   non-controlling  interests,  and  results  of
operations  of a VIE need to be included in a company's  consolidated  financial
statements.  A company that holds  variable  interests in an entity will need to
consolidate  the entity if the  company's  interest  in the VIE is such that the
company will absorb a majority of the VIE's  expected  losses  and/or  receive a
majority  of  the   entity's   expected   residual   returns,   if  they  occur.
Interpretation   No.  46  also  requires   additional   disclosures  by  primary
beneficiaries and other significant variable interest holders. In December 2003,
the FASB completed  deliberations of proposed  modifications to FIN 46 ("Revised
Interpretations")  resulting in multiple  effective dates based on the nature as
well as the creation date of the VIE.  VIE's created after January 31, 2003, but
prior to January 1, 2004,  may be  accounted  for either  based on the  original
interpretation   or  the   Revised   Interpretations.   However,   the   Revised
Interpretations must be applied no later than Hometown's first quarter of fiscal
2004.  VIE's  created  after  January  1, 2004 must be  accounted  for under the
Revised  Interpretations.  Special Purpose Entities  ("SPE's")  created prior to
February  1,  2003  may  be   accounted   for  under  the  original  or  revised
interpretation's  provisions  no later than  Hometown's  first quarter of fiscal
2004. Non-SPE's created prior to February 1, 2003, should be accounted for under
the revised  interpretation's  provisions no later than Hometown's first quarter
of fiscal 2004.  Hometown has not entered  into any material  arrangements  with
VIE's created after January 31, 2003.  The adoption of this  interpretation  did
not have any effect on Hometown's financial statements.

3.    EARNINGS PER SHARE

      "Basic  earnings  per share" is  computed  by  dividing  net income by the
weighted  average  common shares  outstanding.  "Diluted  earnings per share" is
computed  by  dividing  net  income  by  the  weighted   average  common  shares
outstanding  adjusted  for the  incremental  dilution  of  potentially  dilutive
securities. Options and warrants to purchase approximately 556,000 and 1,132,000
shares of common  stock were  outstanding  as of  September  30,  2004 and 2003,
respectively.  Basic and diluted  weighted average shares for the three and nine
months ended September 30, 2004 and 2003 are as follows:


                                       8
<PAGE>

<TABLE>
<CAPTION>
                                  Three Months Ended September 30,        Nine Months Ended September 30,
                                        2004           2003                     2004           2003
                                      ---------      ---------                ---------      ---------

<S>                                   <C>            <C>                      <C>            <C>
Basic, Weighted Average Shares        7,389,389      7,175,105                7,252,529      7,175,105

Common Stock Equivalents                103,819         36,962                  177,363         12,321
                                      ---------      ---------                ---------      ---------
Diluted, Weighted Average Shares      7,493,208      7,212,067                7,429,892      7,187,426
                                      =========      =========                =========      =========
</TABLE>

      The common stock equivalents are options and warrants whose exercise price
is less than the average  market price of the common  shares  during the period.
For the three and nine months ended September 30, 2004,  options and warrants to
purchase  approximately  286,000 and 133,000  shares,  respectively  of Hometown
common stock were excluded from the  calculation of diluted income per share due
to the options and warrant prices being greater than the average market price of
the  common  shares  during  the  period.  For the three and nine  months  ended
September 30, 2003,  options and warrants to purchase 947,000 shares of Hometown
common stock were excluded from the  calculation of diluted income per share due
to the options and warrant prices being greater than the average market price of
the common shares during the period.

      The basic  and  diluted  income  per  share  for the  three  months  ended
September  30,  2004 and 2003 is $0.08 and  $0.12,  respectively.  The basic and
diluted  income per share for the nine months ended  September 30, 2004 and 2003
is $0.12 and $0.25,  respectively.  The nine  months  ended  September  30, 2003
includes  $0.08 per  share  from the gain on sale of a  Chrysler/Jeep  sales and
service franchise in June 2003.

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, net consist of the following:

                                                9/30/04           12/31/03
                                                -------           --------
                                                      (in thousands)
New Vehicles                                    $29,088           $28,420
Used Vehicles                                     7,714             7,255
Parts, accessories and other                      1,884             2,099
                                                -------           -------
   Total Inventories                            $38,686           $37,774
                                                =======           =======

      The lower of cost or market  reserves  were $0.7 million at September  30,
2004 and December 31, 2003.


                                       9
<PAGE>

5.    INTANGIBLE ASSETS

      As of September  30, 2004 and December  31,  2003,  Hometown's  intangible
assets consisted of the following:

                                                  9/30/04          12/31/03
                                                  -------          --------
                                                       (in thousands)
Deferred finance charges                           $ 272             $ 267
Accumulated amortization                            (115)              (98)
Non-compete agreement                                381               381
Accumulated amortization                            (317)             (270)
Franchise Fee                                         10                10
Accumulated amortization                              (3)               (1)
                                                   -----             -----
   Net intangible assets                           $ 228             $ 289
                                                   =====             =====

      These assets are included in Other  Assets in the  consolidated  financial
statements.

6.    FLOOR PLAN NOTES PAYABLE

      Hometown  has a floor  plan line of credit  at each  dealership  with Ford
Motor  Credit  Corporation  ("FMCC").  The FMCC  floor plan  agreement  provides
financing for vehicle  purchases  and is secured by and  dependent  upon new and
used vehicle inventory levels.  Maximum availability under the FMCC agreement is
a function of new and used car sales and is not a pre-determined amount.

      Hometown  is  subject  to the  FMCC  standard  financing  agreement  which
provides  for floor  plan  loans for new and used  vehicles  that have  variable
interest  rates that  increase or decrease  based on  movements  in the prime or
LIBOR borrowing rates. The FMCC agreement has no set maturity date and it is the
intention of Hometown to continue with this financing on an ongoing basis.

7.    BUILDING PURCHASE / OTHER INDEBTEDNESS

      In June 2004,  Hometown  exercised an option to buy the building leased by
its  Brattleboro,  VT.  dealership.  The  purchase  price was $1.5  million plus
closing  costs.  The purchase was financed by a $1.05  million bank loan, a $0.3
million term note held by the seller and $0.15 million in cash. The bank loan is
for 10 years,  carries an interest  rate of 7.0% for the first five years and is
variable thereafter with monthly payments sufficient to amortize the loan over a
15-year period. After 10 years, the terms of the bank loan will be renegotiated.
The note held by the seller is payable  over three years and carries an interest
rate of 10.5%.

8.    EXERCISE OF WARRANTS / COMMON STOCK

      In  connection  with a Private  Equity  Financing  in July 2001,  Hometown
issued  warrants that  entitled the holders to purchase up to 487,498  shares of
Class A Common Stock at a purchase price of $1.20 per share, exercisable over  a
three-year   period.   In  June  2004,   214,284  warrants  were  exercised  for
approximately  $257,000 and 214,284 shares of Class A Common Stock were issued.
All remaining warrants expired in July 2004.

9.    COMMITMENTS AND CONTINGENCIES

      Litigation

      In May 2001,  Hometown's  wholly-owned  subsidiary  Morristown Auto Sales,
Inc. ("Morristown") assigned the lease for the premises,  where it was operating
its Lincoln Mercury  dealership in Morristown,  New Jersey to


                                       10
<PAGE>

Crestmont  MM, L.P.  (the  "Assignee").  On or about July 12,  2002,  Morristown
received  notice from the  landlord  that the Assignee had not paid the required
monthly rent, maintained the premises in accordance with the lease, nor provided
the required  insurance for the premises.  In September 2002,  Hometown received
notice of a complaint  filed by the landlord  against  Hometown,  Morristown and
certain former officers  seeking payment of rent and other  obligations  through
June 2005. In October 2002, Morristown filed a complaint against the Assignee to
recover any  potential  damages  from the  Assignee as provided  under the lease
assignment.  The  Assignee has made a claim  against  Hometown for breach of the
assignment  agreement and  misrepresentation of the use of the subject property.
The Assignee has also brought a claim against Morristown's president, Hometown's
Chief Executive Officer, for misrepresentation.  Total anticipated costs for the
remainder  of the lease  term,  through  June 2005,  is  $540,000  for rent plus
certain other costs.  Hometown believes it has meritorious defenses to the claim
and  cross-claim  and is  vigorously  defending  this action.  In addition,  the
landlord has leased the  premises to another  tenant for the period from January
29, 2003 through January 29, 2005 for a total of $240,000, thereby significantly
reducing Morristown's exposure to a damages judgment for lost rent. The landlord
has also amended its complaint to state a claim  directly  against the assignee.
Hometown  does not  believe  that the  eventual  outcome of the case will have a
material adverse effect on Hometown's consolidated financial position or results
of operations.

      On or about  February  7,  2001,  Salvatore  A.  Vergopia  and  Edward  A.
Vergopia,  former  directors  and  executive  officers  of  Hometown,  and Janet
Vergopia,  the wife of Salvatore A. Vergopia (the "Vergopias") filed a complaint
in the Superior  Court of New Jersey in Bergen  County,  against  Hometown,  its
officers and directors, certain holders of its Class B common stock, and certain
other unnamed persons,  alleging breach of two employment  agreements,  wrongful
termination of employment, breach of a stockholders' agreement and certain other
wrongful conduct, including age discrimination and breach of fiduciary duty. The
Vergopias  are seeking  back pay,  front pay,  compensatory,  consequential  and
punitive  damages,  for  an  unspecified  amount  as  well  as,   reinstatement,
injunctive  and other legal and  equitable  relief.  Salvatore  A.  Vergopia and
Edward A. Vergopia have also  commenced a second action for  defamation  against
Hometown and its Chief Executive  Officer,  which has been consolidated with the
action initially filed.

      Litigation  counsel has been  retained by our  insurers to represent us in
this  action.  A motion  has been  granted  such that only a single  shareholder
remains  as an  individual  shareholder  defendant.  Also,  Hometown  has  filed
counterclaims  to recover  damages  associated  with the  Vergopias  breaches of
certain agreements,  as well as breaches of their fiduciary duties. A trial date
has been set for November 29, 2004.

      Hometown and its chief executive  officer were served with a third lawsuit
brought  by Edward and  Salvatore  Vergopia  claiming  defamation  and  tortious
interference  with  contract  arising out of a letter  allegedly  sent to one of
Hometown's  automobile  manufacturers.  Since the original filing, the Vergopias
have sought to add  Hometown's  Regional Vice President - South as an additional
defendant.  Litigation counsel has been retained by our insurers to represent us
in this action as well.  The third action had been removed from New Jersey state
court to Federal  court,  but has been  remanded  to state  court in New Jersey.
Discovery has been initiated. Hometown presently believes that this third action
by the Vergopias  involves  damage claims that are similar to those already made
in the two pending  actions in the Superior Court of New Jersey in Bergen County
which are scheduled for trial November 29, 2004.

      We believe that the Vergopias  commenced  these actions in response to our
dismissal  of both  Salvatore  A.  Vergopia  and Edward A.  Vergopia  from their
officerships  and employment  positions with us. We believe we have  meritorious
defenses and are vigorously  defending these actions.  Hometown does not believe
that the eventual  outcome of the cases will have a material  adverse  effect on
Hometown's consolidated financial position or results of operations.

      Universal Underwriters Group ("Universal"), Hometown's insurance provider,
commenced a lawsuit against Federal Insurance Company an  affiliate of The Chubb
Group of Insurance Companies ("Federal"), Hometown's former Director and Officer
Liability  Insurance  provider,   Hometown,  certain  officers,   directors  and
shareholders of Hometown and the Vergopias seeking a declaration of its coverage
obligations  with respect to the suit brought by the Vergopias  discussed above.
The suit has been  consolidated  with the  suit  brought  by the  Vergopias  for
discovery and case management purposes.  It is scheduled to be tried immediately
following  the


                                       11
<PAGE>

conclusion  of  the  Vergopias  suit.  Universal  originally   acknowledged  its
obligation to defend and  indemnify  Hometown  against the Vergopias  claims and
engaged separate counsel to represent  Hometown and its directors.  Universal is
now seeking to limit its obligations under the comprehensive insurance policy as
well as require Federal to share in defense and indemnity obligations.  Hometown
originally  commenced an action  seeking  affirmative  declaration of its rights
under its policy with Universal,  but allowed this action to be stayed pending a
resolution   of  the  action   brought  by   Universal.   Hometown  has  brought
counterclaims  against  Universal and a  cross-claim  for  declaratory  judgment
against  Federal.  Hometown  maintains that the insurers are obligated to defend
and indemnify on all claims brought by the Vergopias.  Hometown's former counsel
and assistant  secretary was previously  added to the case as a defendant in the
action and has made cross-claims against Hometown demanding  indemnification for
claims made by the Vergopias  against him in the underlying  action.  The claims
made by the Vergopias against Hometown's former counsel and assistant  secretary
have  been  disposed  of as the  court  granted  summary  judgment  against  the
Vergopias as to those claims. Hometown believes it has meritorious claims and is
vigorously   defending  this  action  and  prosecuting  its   counterclaims  and
cross-claims.  Hometown  does not believe that the eventual  outcome of the case
will  have a  material  adverse  effect  on  Hometown's  consolidated  financial
position or results of operations.

      Hometown  from time to time may be a defendant  in lawsuits  arising  from
normal business  activities.  Management  reviews pending  litigation with legal
counsel and believes that the ultimate  liability,  if any,  resulting from such
actions  will not have a  material  adverse  effect on  Hometown's  consolidated
financial position or results of operations.

      Guarantees

      In connection with the acquisition in 1999 of real estate used by Baystate
Lincoln Mercury, Hometown guaranteed the mortgage debt of Rellum Realty Company.
The 1999 guaranty was given in substitution for a February 1998 guaranty of that
debt by the Muller Group,  a subsidiary of Hometown.  In the event of default by
Rellum Realty Company,  Hometown is required to make the mortgage payments,  but
does not take  ownership of the property.  As of September 30, 2004 the mortgage
debt  balance  is  $4.4  million.   Hometown  makes  annual  lease  payments  of
approximately $864,000 to the landlord. The annual mortgage payments made by the
landlord  total  approximately  $774,000.  The mortgage  matures March 2013. The
lease was recorded as a capital  lease.  The capital  lease  obligation  is $4.0
million at September 30, 2004.

      Warranties

      Hometown's   new  vehicle  sales  and  certain  used  vehicle  sales  have
manufacturer  warranties that specify  coverage and period.  In these instances,
Hometown is reimbursed by the  manufacturer for the cost of parts and service on
the vehicle  covered by these  warranties,  as  specified  by the  manufacturer.
Hometown also provides a limited  warranty on used vehicles sold at retail.  The
warranty  period is as  agreed  upon by the  customer  and may be  subject  to a
minimum period as mandated by the state.  The typical  warranty period ranges up
to three months.  Hometown also sells parts and service.  Manufacturer parts are
covered by limited  warranties,  as specified by the manufacturer.  Service also
has a limited  warranty,  whereby the part and  certain  labor costs are covered
under the limited  manufacturer  warranty.  Also,  certain Hometown  dealerships
provide a three or five year  100,000-mile  limited  warranty on new and/or used
vehicles.  The  cost of this  warranty  is  charged  to the  cost of sale of the
vehicle.  The warranty  covers certain parts and service for three or five years
or until the vehicle  reaches an odometer  reading of 100,000  miles,  whichever
comes sooner. The warranty is insured, making the cost of the warranty fixed for
Hometown.  The insurance company pays costs associated with the warranty work to
Hometown.  An  insurance  company  that is wholly  owned by Ford  Motor  Company
reinsures the insurance policy. If the insurance company were to fail,  Hometown
would be responsible for the costs of the service. Hometown has not recorded any
additional reserve for this warranty program.

      Hometown  records a  reserve  referred  to as  "policy"  for used  vehicle
warranties  and the labor  portion  of  service  warranties  based on  available
historical  information.  At September 30, 2004 and December 31, 2003,  Hometown
has a reserve of $194,000 and  $175,000,  respectively.  The reserve is based on
the last three months of used vehicle units sold and the average cost of repairs
over the last twelve months. While Hometown believes its


                                       12
<PAGE>

estimated  liability  for product  warranties  is adequate and that the judgment
applied is appropriate,  the estimated  liability for product  warranties  could
differ materially from future actual warranty costs.

<TABLE>
<CAPTION>
                                                  Balance At      Additions To                   Balance At
                                                 Beginning of       Costs and                      End of
           Reserve for Policy Work                   Year           Expenses       Deductions      Quarter
   ----------------------------------------    ----------------  ---------------  ------------  -------------
<S>                                                <C>              <C>            <C>            <C>
 Nine Months Ended September 30, 2004              $175,000         $551,000       $(532,000)     $194,000
</TABLE>

      Other  revenues  generated by sales of extended  service  plans,  finance,
insurance  and other do not have any Hometown  warranties  attached to the sale,
except for certain sales in Connecticut dealerships.

      Connecticut  dealerships  operate under state laws  which make the dealers
responsible for providing warranty service and insurance in the event of default
by the insurance  carriers.  Accordingly,  commissions  on insurance and service
contract  sales  are  required  to be  recognized  over the life of the  related
insurance  product.  For these  dealerships,  Hometown  records the revenue as a
liability  and  amortizes  the amount into revenue over a five-year  period.  At
September 30, 2004 and December 31, 2003, Hometown had $1,181,000 and $1,225,000
of  related  deferred  revenue,  respectively.  During  the  nine  months  ended
September  30,  2004,  these  dealerships  generated  approximately  $315,000 of
related warranty service and insurance revenue,  which was deferred.  During the
same period,  approximately  $359,000 of deferred revenue was amortized to Other
Revenues,  net. At September  30, 2004 and December 31, 2003,  Hometown also had
other deferred  revenue of $399,000 and $112,000,  respectively.  The 2004 other
deferred  revenue of $399,000,  represents the balance of a $500,000  advance on
warranty income from Hometown's Extended Service Plan vendor received June 2004.
It is estimated that this advance will be earned over the next 12 months.  There
were no fees or other costs associated with the advance.

      Franchise Agreements

      In August 2004,  Toyota Motor Sales,  U.S.A.,  Inc. notified Hometown that
the current  Toyota  Dealer  Agreement was extended  through  November 18, 2004.
Hometown is currently  awaiting receipt of a revised new Toyota Dealer Agreement
and anticipates  executing that agreement prior to the expiration of the current
agreement.  Previously on March 13, 2003,  Hometown was notified by Toyota Motor
Sales,  U.S.A., that Hometown must correct certain  operational  deficiencies or
make  substantial  progress  toward  rectifying  such  deficiencies.  Toyota had
previously  expressed  concerns  that  the  financial  resources  of the  Toyota
dealerships  were being used to finance the cash flow deficits of other Hometown
dealerships  and  that  because  of this  the  financial  health  of the  Toyota
dealerships  were  detrimentally  affected by a net working capital  deficiency.
Toyota  requested and Hometown  provided a written action plan and  consolidated
financial  forecast.  Toyota also  expressed  concerns  about the impact of Ford
Motor  Credit's  financing  terms upon the Toyota  dealerships  and the existing
litigation,  including the Vergopia's as discussed above in Note 9,  Commitments
and  Contingencies - Litigation.  Hometown  developed and  implemented  plans to
correct the operational  deficiencies that would bring Hometown into compliance.
Hometown has obtained written  confirmations  from Ford Motor Credit in response
to Toyota's  requests for  information  relating to financing  arrangements.  In
addition,  Hometown  has  improved  net  working  capital  through the sale of a
Chrysler/Jeep  sales and  service  franchise  in the second  quarter of 2003 and
advances on warranty  income  from  Hometown's  Extended  Service  Plan  vendor.
Hometown  has been in  regular  contact  with  Toyota to review  the  efforts of
Hometown  to  resolve  the  deficiencies  alleged  by  Toyota.  The  two  Toyota
dealerships for the fiscal year ended December 31, 2003 had combined revenues of
$105.1 million and pre-tax income before  allocation of corporate  costs of $2.3
million. Hometown believes that it has corrected the alleged net working capital
deficiency  for the Toyota  dealerships,  that it has  alleviated  the  concerns
expressed  by Toyota and that  Hometown  will enter into a new dealer  agreement
with Toyota Motor Sales,  U.S.A.  prior to the  expiration of the current dealer
agreement.


                                       13
<PAGE>

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

      Management's discussion and analysis of financial condition and results of
operations  is based on the  historical  financial  statements  of Hometown Auto
Retailers,  Inc. and contains forward-looking  statements that involve risks and
uncertainties.  Hometown's  actual  results  may  differ  materially  from those
discussed in the  forward-looking  statements as a result of various factors, as
described  under "Risk Factors" as detailed on Hometown's  annual report on Form
10-K for the year ended December 31, 2003.

OVERVIEW

      Hometown  sells new and used cars and light trucks,  provides  maintenance
and repair services,  sells  replacement  parts and provides related  financing,
insurance  and  service  contracts  through  9  franchised   dealerships  and  1
stand-alone  service  facility  located in New  Jersey,  New York,  Connecticut,
Massachusetts  and Vermont.  Hometown's  dealerships  offer 9 American and Asian
automotive brands including  Chevrolet,  Chrysler,  Dodge, Ford, Jeep,  Lincoln,
Mazda, Mercury and Toyota.

UNITS

      The units sold by  category  for  Hometown  for the three and nine  months
ended September 30, 2004 and 2003, are as follows:

                                     For the three months    For the nine months
                                      ended September 30,    ended September 30,
                                       2004        2003        2004        2003
                                      ------      ------      ------      ------
New vehicle                            1,663       1,990       4,814       5,456
Used vehicle - retail                    864         947       2,560       2,883
Used vehicle - wholesale                 932         936       2,767       2,316
                                      ------      ------      ------      ------
Total units sold                       3,459       3,873      10,141      10,655
                                      ======      ======      ======      ======

      Hometown sold a Chrysler/Jeep sales and service franchise on June 3, 2003.
The units sold by category  for  Hometown on a same store basis  (excluding  the
aforementioned  Chrysler/Jeep dealership for all periods) for the three and nine
months ended September 30, 2004 and 2003, are as follows:

                                    For the three months     For the nine months
                                     ended September 30,     ended September 30,
                                       2004        2003        2004        2003
                                      ------      ------      ------      ------
New vehicle                            1,663       1,990       4,814       5,363
Used vehicle - retail                    846         911       2,455       2,772
Used vehicle - wholesale                 922         947       2,748       2,311
                                      ------      ------      ------      ------
Total units sold                       3,431       3,848      10,017      10,446
                                      ======      ======      ======      ======


                                       14
<PAGE>

THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 2003.

      REVENUE

      Total revenue  decreased  $8.9 million,  or 11.4% to $69.3 million for the
three months ended  September  30, 2004 from $78.2  million for the three months
ended  September  30,  2003.  Hometown  sold a  Chrysler/Jeep  sales and service
franchise on June 3, 2003. At that time,  sales of new vehicles along with parts
and service  stopped at that  location  while sales of used  vehicles  continued
until August 2004. On a same store basis (excluding the  Chrysler/Jeep  revenues
for all periods),  revenues decreased $8.8 million or 11.3% to $69.0 million for
the three  months  ended  September  30,  2004 from $77.8  million for the three
months ended  September  30, 2003.  This decrease was primarily due to decreased
sales of new vehicles ($8.5 million).

      Revenue from the sale of new vehicles decreased $8.5 million,  or 16.1% to
$44.3  million for the three months ended  September 30, 2004 from $52.8 million
for the three months ended September 30, 2003. The decrease is attributable to a
reduction of 327 units sold ($8.7  million) in 2004 compared to 2003,  partially
offset  by a  0.4%  increase  in  average  selling  price  ($0.2  million).  All
dealerships  contributed  to the  decrease as  follows:  Lincoln  Mercury  ($3.6
million), Toyota ($2.1 million),  Chevrolet ($1.1 million),  Chrysler/Jeep ($0.7
million),  Ford ($0.5  million)  and Mazda ($0.5  million).  The decrease at the
Lincoln Mercury dealerships was primarily due to a decrease of 103 units sold in
2004 compared to 2003 ($3.6 million). This is net of a 5 unit increase in livery
sales ($0.2 million).  The decrease at the Toyota  dealerships was primarily due
to a decrease of 84 units sold in 2004 compared to 2003 ($2.0 million), combined
with a 1.0% decrease in the average selling price ($0.1  million).  The decrease
at the Chevrolet  dealership was primarily due to a decrease of 66 units sold in
2004 compared to 2003 ($1.6  million),  partially  offset by a 12.0% increase in
the average  selling  price  ($0.5  million).  The  Chrysler/Jeep  decrease  was
primarily due to a decrease of 30 units sold ($0.8  million) in 2004 compared to
2003,  partially  offset by a 6.7%  increase in the average  selling price ($0.1
million). The decrease at the Ford dealership was primarily due to a decrease of
24 units sold in 2004  compared to 2003 ($0.6  million),  partially  offset by a
4.1% increase in the average selling price ($0.1  million).  The decrease at the
Mazda  dealership  was  primarily  due to a  decrease  of 20 units  sold in 2004
compared  to 2003  ($0.4  million),  combined  with a 2.2%  decrease  in average
selling price ($0.1 million).

      Revenue from the sale of used vehicles  remained constant at $16.9 million
for the three months ended  September 30, 2004 and September 30, 2003. On a same
store basis,  revenues  increased  $0.1 million or 0.6% to $16.7 million for the
three months ended  September  30, 2004 from $16.6  million for the three months
ended  September 30, 2003.  This was due to: (i) increased used vehicle sales at
wholesale ($0.4 million), due to a 14.7% increase in average selling price ($0.5
million),  partially  offset by a decrease of 25 units  sold in 2004 compared to
2003 ($0.1  million);  and (ii) decreased used vehicle  revenues at retail ($0.2
million),  due to a decrease of 65 units ($1.0 million),  partially  offset by a
5.7% increase in average selling price ($0.8 million). The increase in wholesale
average selling price is a function of the vehicles that were taken as trade-ins
at the time of new  vehicle  purchases.  The  Lincoln  Mercury  ($0.1  million),
Chrysler/Jeep ($0.1 million),  Ford ($0.1 million), and Chevrolet ($0.1 million)
dealerships  experienced  increases  in used  vehicle  sales at  wholesale.  The
decreased revenues at retail were primarily due to decreases at the Toyota ($0.9
million),  Lincoln  Mercury ($0.1 million) and Ford ($0.1 million)  dealerships,
partially offset by increases at the Chevrolet ($0.7 million) and  Chrysler/Jeep
($0.2  million)  dealerships.  The  decrease  at Toyota was  primarily  due to a
decrease  of 69 units.  The  decrease  at the Lincoln  Mercury  dealerships  was
primarily due to a decrease of 42 units ($0.7  million),  partially  offset by a
13.0% increase in average selling price ($0.6 million). The decrease at Ford was
primarily due to a decrease of 4 units, combined with a 2.2% decrease in average
selling price ($0.1 million  combined).  The increase at Chevrolet was primarily
due to the sale of an additional 43 units ($0.6  million),  combined with a 7.7%
increase in average selling price ($0.1 million).

      Parts and service revenue decreased $0.2 million,  or 3.2% to $6.0 million
for the three  months ended  September  30, 2004 from $6.2 million for the three
months ended  September 30, 2003.  On a same store basis,  the decrease in other
dealership revenues remained at $0.2 million.  The decrease was primarily due to
the Lincoln Mercury ($0.2 million) dealerships.


                                       15
<PAGE>

      Other dealership  revenues decreased $0.2 million, or 8.7% to $2.1 million
for the three  months ended  September  30, 2004 from $2.3 million for the three
months ended  September 30, 2003.  On a same store basis,  the decrease in other
dealership  revenues remained at $0.2 million.  This decrease is attributable to
decreases in other dealership revenues of both new and used vehicles.

      GROSS PROFIT

      Total gross profit  decreased $1.1 million,  or 10.1%, to $9.8 million for
the three months ended  September  30,  2004,  from $10.9  million for the three
months ended September 30, 2003. Hometown sold a Chrysler/Jeep sales and service
franchise on September 3, 2003. At that time,  sales of new vehicles  along with
parts  and  service  stopped  at that  location  while  sales  of used  vehicles
continued until August 2004. On a same store basis (excluding the  Chrysler/Jeep
gross profit for all periods),  gross profit decreased $1.0 million,  or 9.3% to
$9.8 million for the three months ended  September 30, 2004,  from $10.8 million
for the three months ended September 30, 2003. This decrease was attributable to
decreased gross profit on: (i) new vehicle sales ($0.8 million),  (ii) parts and
service sales ($0.1 million) and (iii) other dealership revenues ($0.1 million).
Gross  profit  percentage  for  Hometown  was 14.1% for the three  months  ended
September  30, 2004 and 13.9% for the three  months  ended  September  30, 2003.
Adjusting  both  periods for Toyota and  Chevrolet  fleet  sales,  gross  profit
percentage was 14.2% for the three months ended September 30, 2004 and 14.0% for
the three months ended September 30, 2003.

      Gross profit on the sale of new vehicles decreased $0.8 million, or 22.2%,
to $2.8 million for the three months ended September 30, 2004, from $3.6 million
for the three months ended  September 30, 2003.  The decrease in gross profit is
primarily attributable to a decrease of 327 units ($0.6 million),  combined with
a 6.3%  decrease  in  average  gross  profit per  vehicle  ($0.2  million).  The
following  brands  experienced  a  decrease  in gross  profit on the sale of new
vehicles in the 2004 period  compared to 2003:  Lincoln  Mercury ($0.5 million),
Toyota ($0.1 million),  Chevrolet  ($0.1 million) and Ford ($0.1  million).  The
Lincoln  Mercury  decrease  was  primarily  due to a decrease of 103 units ($0.3
million)  combined with a 21.1%  decrease in average gross profit per unit ($0.2
million),  or a 15.0%  decrease  in  average  gross  profit  per  unit  when not
including  livery sales ($0.1 million).  The Toyota and Chevrolet  decreases are
due to a decrease of 84 units and 66 units sold, respectively. The Ford decrease
was due to the  decrease of 24 units  combined  with a 3.7%  decrease in average
gross profit per unit.  Gross profit  percentage  for 2004 was 6.4%  compared to
6.8% for 2003.  Adjusting  both  periods for Toyota and  Chevrolet  fleet sales,
which generate low margins, gross profit percentage for new vehicles was 6.4% in
2004 and 6.9% in 2003.

      Gross  profit  on the  sale of used  vehicles  remained  constant  at $1.6
million for the three months ended September 30, 2004 and September 30, 2003. On
a same  store  basis,  revenues  remained  at $1.6  million  for  both  periods.
Increases at the  Chevrolet  ($0.1  million) and  Chrysler/Jeep  ($0.1  million)
dealerships  were offset by decreases at the Lincoln  Mercury ($0.1 million) and
Toyota ($0.1 million) dealerships. The majority of the changes were at retail. A
decrease of 65 units ($0.1  million),  was offset by a 7.3%  increase in average
gross  profit  per unit  ($0.1  million).  Gross  profit at  wholesale  remained
constant.  Gross profit percentage on the sale of used vehicles was 9.5% in 2004
compared to 9.6% in 2003.

      Parts and service gross profit  decreased  $0.1 million,  or 2.9%, to $3.3
million for the three months ended September 30, 2004, from $3.4 million for the
three months ended  September  30, 2003.  The decrease was  primarily due to the
Lincoln Mercury ($0.1 million) dealerships. Gross profit percentage was 54.9% in
2004 compared to 54.5% in 2003.

      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

      Selling,  general and administrative  expenses decreased $0.9 million,  or
9.8%,  to $8.3 million for the three months ended  September  30, 2004 from $9.2
million for the three months ended September 30, 2003. The decrease is primarily
attributable  to  reductions  in payroll and related  taxes and  benefits  ($0.7
million),  professional fees ($0.3 million) and various reserves for chargebacks
(less than $0.1 million), partially offset by an increase in advertising of $0.1
million.


                                       16
<PAGE>

      INTEREST EXPENSE

      Interest expense increased $0.1 million, or 14.3%, to $0.8 million for the
three months ended  September  30, 2004,  from $0.7 million for the three months
ended  September  30,  2003.  The  increase is  primarily  due to an increase of
floorplan interest expense resulting from higher average borrowings.

      PROVISION FOR INCOME TAX

      The effective income tax rate was 27.0% in the quarter ended September 30,
2004 and 21.0% in the same  period  of 2003.  The rates  were  based on  current
forecasts of income before taxes, and current forecasts of permanent differences
between tax and book  income.  The 2004 rate  reflects  the  expected  full year
effective  tax  rate  adjusted  for  a  reduction  in  the  valuation  allowance
associated with the 2004 amortization of goodwill for tax purposes.

      NET INCOME AND EARNINGS PER SHARE

      Net income  decreased  $0.2  million to $0.6  million for the three months
ended September 30, 2004, from $0.8 million for the three months ended September
30, 2003. See above for explanation of the decrease.

      The basic  and  diluted  income  per  share  for the  three  months  ended
September 30, 2004 and 2003 is $0.08 and $0.12, respectively.  See Note 3 to the
consolidated financial statements.

NINE MONTHS ENDED  SEPTEMBER 30, 2004 COMPARED WITH NINE MONTHS ENDED  SEPTEMBER
30, 2003.

      REVENUE

      Total revenue  decreased $12.7 million,  or 5.9% to $203.9 million for the
nine months ended  September 30, 2004,  from $216.6  million for the nine months
ended  September  30,  2003.  Hometown  sold a  Chrysler/Jeep  sales and service
franchise on June 3, 2003. At that time,  sales of new vehicles along with parts
and service  stopped at that  location  while sales of used  vehicles  continued
until August 2004. On a same store basis (excluding the  Chrysler/Jeep  revenues
for all periods),  revenues decreased $9.0 million or 4.2% to $202.8 million for
the nine months  ended  September  30,  2004,  from $211.8  million for the nine
months ended  September  30, 2003.  This decrease was primarily due to decreased
sales of new vehicles ($7.0 million) and used vehicles ($1.6 million).

      Revenue from the sale of new vehicles  decreased $9.5 million,  or 6.8% to
$130.2 million for the nine months ended September 30, 2004, from $139.7 million
for the nine months ended  September 30, 2003.  On a same store basis,  revenues
decreased  $7.0  million,  or 5.1% to $130.2  million for the nine months  ended
September 30, 2004,  from $137.2 million for the nine months ended September 30,
2003.  The  decrease is  attributable  to a reduction  of 549 units sold in 2004
compared to 2003 ($14.0 million), partially offset by a 5.7% increase in average
selling price ($7.0 million). The increase in average selling price is primarily
due to higher fleet sales in 2003 compared to 2004.  The fleet sales had a lower
average  selling  price than other units sold.  Excluding  Toyota and  Chevrolet
fleet sales, there was a 2.6% increase in average selling price. The decrease is
primarily from Hometown's Toyota ($5.3 million), Ford ($1.5 million),  Chevrolet
($1.0  million),  and Mazda  ($0.6  million)  dealerships,  partially  offset by
increases at Lincoln  Mercury ($1.2 million) and  Chrysler/Jeep  ($0.2 million).
The decrease at the Toyota  dealerships  was  primarily  due a decrease in fleet
sales of $4.4  million,  due to a decrease of 316 units sold in 2004 compared to
2003.  Excluding the decrease in fleet sales,  other Toyota sales decreased $0.9
million,  due to a  decrease  of 91 units  sold in 2004  compared  to 2003 ($2.1
million), partially offset by a 2.4% increase in the average selling price ($1.2
million). The decrease at the Ford dealership was primarily due to a decrease of
64 units sold in 2004 compared to


                                       17
<PAGE>

2003 ($1.7  million),  partially  offset by a 1.7%  increase in average  selling
price ($0.2 million). The decrease at the Chevrolet dealership was primarily due
to a decrease in fleet sales of $0.8 million, due to a decrease of 42 units sold
in 2004 compared to 2003. Excluding the decrease in fleet sales, other Chevrolet
sales  decreased  $0.2  million,  due to a  decrease  of 40  units  sold in 2004
compared  to 2003 ($1.0  million),  partially  offset by a 5.7%  increase in the
average selling price ($0.8 million).  The decrease at the Mazda  dealership was
primarily  due to a decrease  of 28 units  sold in 2004  compared  to 2003.  The
increase at the Lincoln Mercury  dealerships was primarily due to an increase of
140 livery units sold in 2004 compared to 2003 ($5.4 million),  partially offset
by a decrease of other sales of $4.2 million due to a decrease of 105 units sold
in 2004  compared to 2003 ($3.7  million),  combined with a 2.1% decrease in the
average selling price ($0.5 million).  The Chrysler/Jeep  increase was primarily
due to a 5.2% increase in the average  selling price ($0.3  million),  partially
offset by a decrease of 3 units sold ($0.1 million) in 2004 compared to 2003.

      Revenue from the sale of used vehicles decreased $2.4 million,  or 4.6% to
$49.6  million for the nine months ended  September  30, 2004 from $52.0 million
for the nine months ended  September 30, 2003.  On a same store basis,  revenues
decreased  $1.6  million  or 3.2% to $48.6  million  for the nine  months  ended
September  30, 2004 from $50.2  million for the nine months ended  September 30,
2003.  This was due to: (i)  decreased  used  vehicle  revenues at retail  ($2.7
million),  due to a decrease of 317 units ($4.6 million),  partially offset by a
5.2% increase in average selling price ($1.9 million),  (ii) partially offset by
increased used vehicle sales at wholesale ($1.1 million),  due to an increase of
437 units sold in 2004 compared to 2003 ($1.8  million),  partially  offset by a
6.1% decrease in average selling price ($0.7 million). The decrease in wholesale
average selling price is a function of the vehicles that were taken as trade-ins
at the time of new vehicle  purchases.  Although  the average  selling  price on
wholesale  decreased in 2004 from 2003,  average gross profit per unit increased
slightly.  Used vehicle inventory  available for sale at retail increased during
the year due to the  increased  new vehicle  sales  (during the first quarter of
2004)  bringing in more  vehicles as trade-ins at time of new vehicle  purchase.
This  combined  with the  decrease in used vehicle  sales at retail  caused more
vehicles to be sold at wholesale to manage used vehicle  inventory  levels.  The
decreased revenues at retail were primarily due to decreases at the Toyota ($2.5
million),  Ford ($1.2 million),  Lincoln Mercury ($1.0 million), and Mazda ($0.2
million)  dealerships,  partially  offset by  increases at the  Chevrolet  ($2.0
million) and Chrysler/Jeep  ($0.2 million)  dealerships.  The decrease at Toyota
was primarily due to a decrease of 212 units ($3.0 million), partially offset by
a 5.1% increase in average  selling price ($0.5  million).  The decrease at Ford
was primarily due to a decrease of 69 units ($1.0 million), combined with a 3.9%
decrease in average  selling price ($0.2  million).  The decrease at the Lincoln
Mercury dealerships was primarily due to a decrease of 135 units ($2.2 million),
partially  offset by a 10.2% increase in average  selling price ($1.2  million).
The  decrease  at Mazda  was  primarily  due to a  decrease  of 24  units  ($0.3
million),  partially  offset by a 10.7% increase in average  selling price ($0.1
million).  The  increase  at  Chevrolet  was  primarily  due to the  sale  of an
additional  120 units ($1.6  million),  combined with a 6.0% increase in average
selling price ($0.4 million). The increase at Chrysler/Jeep was primarily due to
a 2.9% increase in average  selling price.  The Toyota ($0.7  million),  Lincoln
Mercury ($0.2 million) and Ford ($0.2 million) dealerships experienced increases
in used vehicle revenues at wholesale.

      Parts and service revenue decreased $0.6 million, or 3.2% to $18.1 million
for the nine months ended  September  30, 2004,  from $18.7 million for the nine
months  ended  September  30,  2003.  On a same store  basis,  parts and service
revenue  decreased  $0.1  million,  or 0.5% to $18.1 million for the nine months
ended September 30, 2004, from $18.1 million for the nine months ended September
30, 2003.  Decreases at the Lincoln  Mercury  ($0.5  million) and  Chrysler/Jeep
($0.1  million)  dealerships  were  partially  offset by increases at the Toyota
($0.3 million), Ford ($0.1 million) and Chevrolet ($0.1 million) dealerships.

      Other dealership  revenues decreased $0.3 million, or 4.8% to $6.0 million
for the nine months ended  September  30,  2004,  from $6.3 million for the nine
months  ended  September  30,  2003.  On a same store  basis,  other  dealership
revenues  decreased  $0.2  million,  or 3.3% to $5.9 million for the nine months
ended  September 30, 2004, from $6.1 million for the nine months ended September
30,  2003.  Decreases  in  other  dealership  revenues  of used  vehicles  ($0.3
million),  was partially offset by increases in other dealership revenues of new
vehicles ($0.1 million).


                                       18
<PAGE>

      GROSS PROFIT

      Total gross profit  decreased $1.8 million,  or 5.9%, to $28.9 million for
the nine months ended September 30, 2004, from $30.7 million for the nine months
ended  September  30,  2003.  Hometown  sold a  Chrysler/Jeep  sales and service
franchise on June 3, 2003. At that time,  sales of new vehicles along with parts
and service  stopped at that  location  while sales of used  vehicles  continued
until August 2004.  On a same store basis  (excluding  the  Chrysler/Jeep  gross
profit for all periods),  gross profit decreased $1.3 million,  or 4.3% to $28.7
million for the nine months ended September 30, 2004, from $30.0 million for the
nine months ended September 30, 2003.  This decrease was primarily  attributable
to decreased  gross  profit on new vehicle  sales ($0.7  million),  used vehicle
sales ($0.3 million),  other dealership  revenues ($0.2  million),and  parts and
service sales ($0.1 million). Gross profit percentage for Hometown was 14.2% for
the nine months ended September 30, 2004 and September 30, 2003.  Adjusting both
periods for Toyota and Chevrolet fleet sales,  gross profit percentage was 14.2%
for the nine months ended September 30, 2004 and 14.6% for the nine months ended
September 30, 2003.

      Gross profit on the sale of new vehicles decreased $0.8 million,  or 8.7%,
to $8.4 million for the nine months ended  September 30, 2004, from $9.2 million
for the nine months ended September 30, 2003. On a same store basis gross profit
on the sale of new vehicles decreased $0.7 million, or 7.7%, to $8.4 million for
the nine months ended  September 30, 2004, from $9.1 million for the nine months
ended September 30, 2003. The decrease in gross profit is primarily attributable
to a decrease of 549 units ($0.9 million),  partially  offset by a 3.0% increase
in average gross profit per vehicle ($0.2 million). The unit decrease includes a
358-unit  decrease  attributable  to Toyota (316 units) and Chevrolet (42 units)
fleet sales,  which had a minimal  effect on gross profit  ($40,000).  Excluding
fleet sales, the following brands  experienced  decreases in gross profit on the
sale of new vehicles in 2004 compared to 2003:  Lincoln  Mercury ($0.6 million),
Ford ($0.2 million) and Chevrolet ($0.1 million).  The Lincoln Mercury  decrease
is net of an increase of $0.1  million  attributable  to a 140-unit  increase in
livery sales.  Partially  offsetting this were increases at: Chrysler/Jeep ($0.1
million),  and Mazda ($0.1  million).  These  increases  were  primarily  due to
increased gross profit per unit.  Gross profit  percentage was 6.4% for the 2004
period  and 6.6% for the 2003  period.  Adjusting  both  periods  for Toyota and
Chevrolet fleet sales,  which generate low margins,  gross profit percentage for
new vehicles was 6.5% in 2004 and 6.9% in 2003.

      Gross profit on the sale of used vehicles decreased $0.3 million, or 6.0%,
to $4.7 million for the nine months ended  September 30, 2004, from $5.0 million
for the nine months  ended  September  30, 2003.  On a same store  basis,  gross
profit  decreased  $0.3  million,  or 6.1%,  to $4.6 million for the nine months
ended  September 30, 2004, from $4.9 million for the nine months ended September
30, 2003. This decrease is primarily due to a 317-unit  decrease at retail ($0.5
million), partially offset by a 5.4% increase in average gross profit per retail
unit ($0.2 million).  Decreases at retail for the Toyota ($0.3 million), Lincoln
Mercury ($0.2  million),  and Ford ($0.1  million)  dealerships  were  partially
offset by increases at the  Chevrolet  ($0.2  million) and  Chrysler/Jeep  ($0.1
million)  dealerships.  Gross profit on wholesale  increased  slightly due to an
additional 437 units sold in 2004 compared to 2003.  Gross profit  percentage on
the sale of used vehicles was 9.4% in 2004 compared to 9.7% in 2003.

      Parts and service gross profit  decreased  $0.4 million,  or 3.9%, to $9.8
million for the nine months ended September 30, 2004, from $10.2 million for the
nine months  ended  September  30,  2003.  On a same store  basis,  gross profit
decreased  $0.2  million,  or 2.0%,  to $9.8  million for the nine months  ended
September 30, 2004,  from $10.0 million for the nine months ended  September 30,
2003.  Gross  profit  percentage  was 54.3% in 2004  compared  to 54.7% in 2003.
Decreases at the Lincoln Mercury ($0.3 million) and Chrysler/Jeep ($0.1 million)
dealerships  were partially offset by increases at the Toyota ($0.1 million) and
Mazda, Ford and Chevrolet (together totaling $0.1 million) dealerships.


                                       19
<PAGE>

      SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

      Selling,  general and administrative  expenses decreased $1.3 million,  or
4.9%, to $25.4  million for the nine months ended  September 30, 2004 from $26.7
million for the nine months ended  September 30, 2003. The decrease is primarily
attributable  to  reductions  in payroll and related  taxes and  benefits  ($1.2
million),  various reserves for chargebacks ($0.3 million) and professional fees
($0.3 million),  partially offset by an increase in advertising of $0.4 million.
Approximately  $0.2 million of the decrease in payroll and related  taxes is due
to the sale of the Chrysler/Jeep sales and service franchise in June 2003.

      OTHER INCOME

      In June 2003, Hometown sold a Chrysler/Jeep sales and service franchise in
Waterbury,  CT resulting in a gain of approximately  $936,000  recorded in Other
Income.

      INTEREST EXPENSE

      Interest expense increased $0.2 million,  or 8.7%, to $2.5 million for the
nine months  ended  September  30,  2004,  from $2.3 million for the nine months
ended  September  30,  2003.  The  increase is  primarily  due to an increase of
floorplan interest expense resulting from higher average borrowings.

      PROVISION FOR INCOME TAX

      The effective income tax rate was 27.0% in the nine months ended September
30, 2004 and 33.1% in the same  period of 2003.  The rates were based on current
forecasts of income before taxes, and current forecasts of permanent differences
between tax and book  income.  The 2004 rate  reflects  the  expected  full year
effective  tax  rate  adjusted  for  a  reduction  in  the  valuation  allowance
associated with the 2004 amortization of goodwill for tax purposes.

      NET INCOME AND EARNINGS PER SHARE

      Net income  decreased  $0.9  million to $0.9  million  for the nine months
ended  September 30, 2004, from $1.8 million for the nine months ended September
30, 2003. The decrease is primarily due to the gain on sale of the Chrysler/Jeep
sales and  service  franchise  recorded in Other  Income in 2003.  See above for
explanation of other changes.

      The basic and diluted income per share for the nine months ended September
30,  2004 and 2003 is $0.12  and  $0.25,  respectively.  The nine  months  ended
September  30,  2003  includes  $0.08  per  share  from  the  gain  on sale of a
Chrysler/Jeep  sales  and  service  franchise  in June  2003.  See Note 3 to the
consolidated financial statements.

CYCLICALITY

      Hometown'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  Hometown's  operations,  Hometown  believes that the
impact on Hometown'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

      Hometown'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 and (iii) consumer buying patterns.


                                       20
<PAGE>

EFFECTS OF INFLATION

      Due to the relatively low levels of inflation  experienced in the 2004 and
2003  periods,  inflation  did not have a  significant  effect on the results of
Hometown during those periods.

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  was $5.2  million  and $5.6  million at
September 30, 2004 and December 31, 2003, respectively.

      Cash Flow from Operations

      The following table sets forth the consolidated  selected information from
the unaudited statements of cash flows:

                                                            Nine months ended
                                                               September 30,
                                                           2004           2003
                                                          -------       -------
                                                             (in thousands)
Net cash provided by operating activities                 $ 1,488       $ 3,581
Net cash provided by (used in) investing activities        (1,821)          349
Net cash (used in) financing activities                       (82)       (1,813)
                                                          -------       -------
Net increase (decrease) in cash and cash equivalents      $  (415)      $ 2,117
                                                          =======       =======

      For the nine months ended  September  30,  2004,  net cash  provided  from
operations of $1.5 million  primarily  consists of: (i) net income plus non-cash
items of $2.2 million and (ii) the increase in floor plan liability in excess of
the increase in inventory of $0.6 million, (iii) partially offset by an increase
in accounts receivable of $1.2 million. Net cash used in investing activities of
$1.8 million is due to capital  expenditures,  primarily  the  Brattleboro,  VT.
building  purchased  in June 2004 for $1.5  million.  Net cash used in financing
activities  of $0.1 million is due to principal  payments of long-term  debt and
capital lease  obligations  of $1.7 million;  partially  offset by proceeds from
long-term  borrowings of $1.4 million and exercise of warrants of $0.26 million.
The long-term  borrowings  were used to acquire the  Brattleboro,  VT.  building
discussed above.

      For the nine months ended  September  30,  2003,  net cash  provided  from
operations of $3.6 million  primarily  consists of: (i) net income plus non-cash
items of $2.7 million;  (ii) the decrease in inventory in excess of the decrease
in floor plan  liability  of $1.5  million;  and (iii) an  increase  in accounts
payable and accrued  expenses of $1.7  million,  partially  offset by  increased
accounts receivable of $2.1 million.  Net cash provided by investing  activities
of  $0.3  million  is  primarily  due  to  the  proceeds  from  the  sale  of  a
Chrysler/Jeep  Sales and Service Franchise of $0.9 million,  partially offset by
capital  expenditures of $0.6 million.  Net cash used in financing activities of
$1.8  million is  primarily  due to  principal  payments of  long-term  debt and
capital lease obligations.

      Capital Expenditures

      Capital expenditures for fiscal 2004 are expected to be approximately $2.2
million,  consisting  primarily  of the  purchase of a building,  equipment  and
leasehold improvements. The building was acquired in June 2004 for $1.5 million.
It is a Hometown dealership that had been previously leased, that had a purchase
option. See Other Indebtedness.


                                       21
<PAGE>

      Receivables

      Hometown had $7.2  million in accounts  receivable  at September  30, 2004
compared  to  $6.1  million  at  December  31,  2003.   The  majority  of  those
receivables, $3.7 million and $3.1 million as of September 30, 2004 and December
31, 2003,  respectively,  are due from finance  companies that provide or secure
financing for customer purchases, and primarily represent  contracts-in-transit.
These amounts are typically  received within seven days of the transaction.  The
allowance  for  doubtful  accounts  is $0.3  million at  September  30, 2004 and
December 31, 2003.

      Floor Plan Financing

      Hometown  has a floor  plan line of credit  at each  dealership  with Ford
Motor Credit  Corporation  ("FMCC").  See Note 6 to the  consolidated  financial
statements.

      Other Indebtedness

      In June 2004,  Hometown  exercised an option to buy the building leased by
its  Brattleboro,  VT.  dealership.  The  purchase  price was $1.5  million plus
closing  costs.  The purchase was financed by a $1.05  million bank loan, a $0.3
million term note held by the seller and $0.15 million in cash. The bank loan is
for 10 years,  carries an interest  rate of 7.0% for the first five years and is
variable thereafter with monthly payments sufficient to amortize the loan over a
15-year period. After 10 years, the terms of the bank loan will be renegotiated.
The note held by the seller is payable  over three years and carries an interest
rate of 10.5%.

      Exercise of Warrants / Common Stock

      In  connection  with a Private  Equity  Financing  in July 2001,  Hometown
issued  warrants that  entitled the holders to purchase up to 487,498  shares of
Class A Common shares at a purchase price of $1.20 per share, exercisable over a
three-year   period.   In  June  2004,   214,284  warrants  were  exercised  for
approximately $257,000, and 214,284 shares of Class A Common shares were issued.
All remaining warrants expired in July 2004.

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 Hometown's future plans of operations,  business strategy, results of
operations  and  financial  condition.  Hometown  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 Hometown 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 Hometown's reports and registration  statements filed with the Securities and
Exchange  Commission  (the  "Commission").  Hometown  disclaims  any  intent  or
obligation to update such forward-looking statements.


                                       22
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      We are  exposed  to market  risk from  changes  in  interest  rates on our
amounts  outstanding  under our floor plan  financing  arrangement,  which bears
interest at variable rates based on the prime or LIBOR borrowing rates. Based on
floor plan amounts  outstanding  at September  30, 2004 of $38.7  million,  a 1%
change in the prime rate would result in a $0.4  million  change to annual floor
plan interest expense.

      At September 30, 2004,  Hometown  invested $4.2 million of excess cash, of
which $1.0  million was  invested  in money  market  accounts  paying a weighted
average  interest  rate of 1.06% at  September  30,  2004,  and $3.2 million was
invested in a Ford Motor Credit Company cash management  account paying interest
of 5.50% at September 30, 2004.  The cash  management  account  interest rate is
tied to the rate charged on Hometown's floor plan financing arrangement.

ITEM 4. CONTROLS AND PROCEDURES

      We maintain disclosure controls and procedures that are designed to ensure
that  information  required to be disclosed in our reports under the  Securities
Exchange  Act of 1934,  as amended,  are  recorded,  processed,  summarized  and
reported  within the time periods  specified  in the SEC's rules and forms,  and
that  such  information  is  accumulated  and  communicated  to our  management,
including our Chief Executive  Officer (CEO) and Chief Financial  Officer (CFO),
as appropriate,  to allow timely decisions  regarding  required  disclosure.  In
designing and  evaluating  the disclosure  controls and  procedures,  management
recognizes  that any  disclosure  controls  and  procedures,  no matter how well
designed and operated,  can provide only  reasonable  assurance of achieving the
desired control  objectives,  and management  necessarily is required to use its
judgment in evaluating the cost to benefit relationship of possible controls and
procedures.

      At September 30, 2004,  management,  with the participation of the CEO and
CFO,  evaluated the  effectiveness of the design and operation of our disclosure
controls  and  procedures.  Based  upon  that  evaluation  and  subject  to  the
foregoing,  our  management,  including  the CEO and  CFO,  concluded  that  our
disclosure   controls  and  procedures   were  effective  to  accomplish   their
objectives.

      There have been no  significant  changes  in our  internal  controls  over
financial  reporting  during the most  recently  completed  fiscal  quarter that
materially affected, or are reasonably likely to materially affect, our internal
controls over financial reporting.


                                       23
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

      See Note 9 - Commitments and  Contingencies - Litigation,  to the notes to
the unaudited consolidated financial statements.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      a.    Exhibits:

            31.1  Chief Executive Officer Certification

            31.2  Chief Financial Officer Certification

            32.1  Chief Executive  Officer  Certification  pursuant to 18 U.S.C.
                  Section  1350,  as  adopted  pursuant  to  Section  906 of the
                  Sarbanes-Oxley Act of 2002

            32.2  Chief Financial  Officer  Certification  pursuant to 18 U.S.C.
                  Section  1350,  as  adopted  pursuant  to  Section  906 of the
                  Sarbanes-Oxley Act of 2002

      b.    Reports on Form 8-K

            On August 11, 2004, Hometown filed a report on Form 8-K with respect
            to  Items  7  and  12 on  such  report,  related  to  the  Company's
            announcing its second quarter 2004 results.


                                       24
<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 11, 2004                     By: /s/ Corey E.  Shaker
------------------------              --------------------------------------
Date                                  Corey E. Shaker
                                      President and Chief Executive Officer


November 11, 2004                     By: /s/ Charles F. Schwartz
------------------------              --------------------------------------
Date                                  Charles F. Schwartz
                                      Chief Financial Officer


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