SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


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

                  For the quarterly period ended March 31, 2005


                        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.)

                             1309 South Main Street
                               Waterbury, CT 06706
               (Address of principal executive offices) (Zip code)

                                 (203) 756-1300
               (Registrant's telephone number including area code)

                              774 Straits Turnpike
                               Watertown, CT 06795
              (Former name, former address and former fiscal year,
                         if changed since last report)

            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         3,870,137
            per share
            Common Stock, Class B, par value $.001         2,579,252
            per share

<PAGE>

                                      INDEX

                                                                            Page
PART I.     FINANCIAL INFORMATION

ITEM 1.     Consolidated Balance Sheets at March 31, 2005 (Unaudited)
            and December 31, 2004 (Audited)                                    3
            Unaudited Consolidated Statements of Operations for the
            three months ended March 31, 2005 and 2004                         4
            Unaudited Consolidated Statements of Stockholders' Equity
            for the three months ended March 31, 2005 and 2004                 5
            Unaudited Consolidated Statements of Cash Flows for the
            three months ended March 31, 2005 and 2004                         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        20
ITEM 4.     Controls and Procedures                                           20

PART II.    OTHER INFORMATION

ITEM 1.     Legal Proceedings                                                 21
ITEM 2.     Unregistered Sales Of Equity Securities and Use of Proceeds       21
ITEM 3.     Defaults Upon Senior Securities                                   21
ITEM 4.     Submission of Matters to a Vote of Security Holders               21
ITEM 5.     Other Information                                                 21
ITEM 6.     Exhibits                                                          21

SIGNATURES                                                                    22

CERTIFICATIONS                                                                23

                           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.  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)

                                                       March 31,    December 31,
                                  ASSETS                2005            2004
                                                     (Unaudited)
                                                       ----------    ----------
Current Assets:
   Cash and cash equivalents                           $    5,336    $    6,101
   Accounts receivable, net                                 6,320         5,081
   Inventories, net                                        42,930        43,440
   Prepaid expenses and other current assets                  745           634
   Deferred and prepaid income taxes                        1,464         1,464
                                                       ----------    ----------
     Total current assets                                  56,795        56,720

Property and equipment, net                                13,663        13,854
Other assets                                                3,524         3,649
                                                       ----------    ----------
     Total assets                                      $   73,982    $   74,223
                                                       ==========    ==========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
   Floor plan notes payable                            $   42,573    $   42,474
   Accounts payable and accrued expenses                    5,750         5,106
   Current maturities of long-term debt and                 5,477         5,505
     capital lease obligations
   Deferred revenue                                           664           735
                                                       ----------    ----------
     Total current liabilities                             54,464        53,820

Long-term debt and capital lease obligations                8,521         8,621
Long-term deferred income taxes                               123           123
Other long-term liabilities and deferred revenue              716           726
                                                       ----------    ----------
     Total liabilities                                     63,824        63,290

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 shares issued and outstanding                    4             4
   Common stock, Class B, $.001 par value,
     3,760,000 shares authorized,
     3,519,252 shares issued                                    3             3
   Additional paid-in capital                              30,017        30,017
   Accumulated deficit                                    (18,823)      (19,091)
   Less: treasury stock, 940,000 Class B shares            (1,043)           --
     in 2005                                           ----------    ----------

     Total stockholders' equity                            10,158        10,933
                                                       ----------    ----------
     Total liabilities and stockholders' equity        $   73,982    $   74,223
                                                       ==========    ==========

              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)

                                                            For the Three
                                                                Months
                                                            Ended March 31,
                                                       ------------------------
                                                          2005         2004
                                                       ----------    ----------
Revenues
   New vehicle sales                                   $   38,025    $   41,115
   Used vehicle sales                                      15,560        16,910
   Parts and service sales                                  6,156         5,959
   Other, net                                               2,025         1,894
                                                       ----------    ----------
      Total revenues                                       61,766        65,878

Cost of sales
   New vehicle                                             35,592        38,355
   Used vehicle                                            14,003        15,244
   Parts and service                                        2,865         2,759
                                                       ----------    ----------
      Total cost of sales                                  52,460        56,358
                                                       ----------    ----------
      Gross profit                                          9,306         9,520

Selling, general and administrative
  expenses                                                  8,009         8,648
                                                       ----------    ----------
      Income from operations                                1,297           872

   Interest income                                             70            44
   Interest (expense)                                        (920)         (774)
   Other income                                                 2             2
   Other (expense)                                             --            (4)
                                                       ----------    ----------

Pre-tax income                                                449           140
      Provision for income taxes                              181            38
                                                       ----------    ----------
Net income                                             $      268    $      102
                                                       ==========    ==========
Earnings per share, basic                              $     0.04    $     0.01
                                                       ==========    ==========

Earnings per share, diluted                            $     0.04    $     0.01
                                                       ==========    ==========

Weighted average shares outstanding,                    7,086,500     7,175,105
  basic
Weighted average shares outstanding,                    7,210,990     7,471,259
  diluted

                 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   Treasury     Stockholders'
               Shares       Amount       Shares       Amount       Capital     Deficit)       Stock         Equity
             ----------   ----------   ----------   ----------   ----------   ----------    ----------    ----------
<S>          <C>          <C>          <C>          <C>          <C>           <C>          <C>           <C>

Balance at
  December 31,
  2003            3,656   $        4        3,519   $        3   $   29,760   $  (22,839)   $       --    $    6,928
Net income           --           --           --           --           --          102            --           102
             ----------   ----------   ----------   ----------   ----------   ----------    ----------    ----------
Balance at
  March 31,
  2004            3,656   $        4        3,519   $        3   $   29,760   $  (22,737)   $       --    $    7,030
             ==========   ==========   ==========   ==========   ==========   ==========    ==========    ==========

Balance at
  December
  31, 2004        3,870   $        4        3,519   $        3   $   30,017   $  (19,091)   $       --    $   10,933
Net income           --           --           --           --           --          268            --           268
Litigation
  Settlement
  (Note 8)           --           --           --           --           --           --        (1,043)       (1,043)
             ----------   ----------   ----------   ----------   ----------   ----------    ----------    ----------
Balance at
  March 31,
  2005            3,870   $        4        3,519   $        3   $   30,017   $  (18,823)   $   (1,043)   $   10,158
             ==========   ==========   ==========   ==========   ==========   ==========    ==========    ==========

</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)
                                                        For the Three Months
                                                          ended March 31,
                                                  -----------------------------
                                                       2005            2004
                                                  ------------     ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                        $        268     $        102
Adjustments to reconcile net income to net
  cash provided by operating activities -
   Depreciation and amortization                           335              311
   Loss on sale of fixed assets                             --                4
   Deferred income taxes                                   181               38
   Changes in assets and liabilities:
      Accounts receivable, net                          (1,239)            (667)
      Inventories, net                                     562           (6,494)
      Prepaid expenses and other current assets           (111)              (9)
      Prepaid taxes                                        (32)             (90)
      Other assets                                         (64)              11
      Floor plan notes payable                              99            7,198
      Accounts payable and accrued expenses               (399)             493
      Deferred revenue                                     (71)            (142)
      Other long-term liabilities and                      (10)              79
       deferred revenue                           ------------     ------------
   Net cash provided by (used in) operating               (481)             834
     activities

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                      (57)             (94)
                                                  ------------     ------------
   Net cash (used in) investing activities                 (57)             (94)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Principal payments of long-term debt and               (452)            (560)
     capital lease obligations
   Proceeds from long-term borrowings                      225               --
                                                  ------------     ------------
   Net cash (used in) financing activities                (227)            (560)

Net increase (decrease) in cash and cash                  (765)             180
  equivalents
CASH AND CASH EQUIVALENTS, beginning of period           6,101            5,639
                                                  ------------     ------------
CASH AND CASH EQUIVALENTS, end of period          $      5,336     $      5,819
                                                  ============     ============
 Cash paid for - Interest                         $        897     $        770

 Cash paid for - Taxes                            $         32     $         90
 Purchases financed by capital lease
   obligations                                    $        117     $        327


              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  8  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 March 31, 2005,  the
consolidated  statements of operations for the three months ended March 31, 2005
and  2004,  the  consolidated   statements  of  stockholders'   equity  and  the
consolidated  statements of cash flows for the three months ended March 31, 2005
and 2004, 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,  2004,  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 March 31, 2005,  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>

                                                          Three Months Ended
                                                               March 31,
                                                          2005          2004
                                                        ---------     ---------
                                                      (in thousands, except per
                                                            share data)
Net income, as reported                                 $     268     $     102
Deduct: Total stock-based employee
  compensation expense determined under
  fair value based method for all awards,                      (2)           (7)
  net of related tax effects (1)
                                                        ---------     ---------
Pro forma net income                                    $     266     $      95
                                                        =========     =========
Earnings per share:
Basic, as reported                                      $    0.04     $    0.01
Basic, pro forma                                        $    0.04     $    0.01

Diluted, as reported                                    $    0.04     $    0.01
Diluted, pro forma                                      $    0.04     $    0.01

(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  (FIN  46),
Consolidation of Variable  Interest  Entities,  an  Interpretation of Accounting
Research  Bulletin No. 51. The  objective of this  interpretation  is to provide
guidance on how to identify a variable  interest entity ("VIE") and requires the
VIE to be consolidated by its primary  beneficiary.  The primary  beneficiary is
the party that absorbs a majority of the VIE's expected losses and/or receives a
majority of the entity's expected  residual returns,  if they occur. In December
2003,  the FASB  issued  FIN  46(R)  ("Revised  Interpretations")  delaying  the
effective date for certain  entities  created before February 1, 2003 and making
other  amendments to clarify the  application  of the guidance.  In adopting FIN
46(R)  Hometown has evaluated its variable  interests to determine  whether they
are in fact VIE's and whether  Hometown was the primary  beneficiary of the VIE.
This evaluation  resulted in determining  that Hometown has a VIE with a related
party,  whereby  Hometown  guarantees  the  mortgage  debt of the  company.  The
adoption of this  interpretation  did not have a material  effect on  Hometown's
financial statements.

      SFAS No. 123 (Revised  2004),  "Share-Based  Payment,"  issued in December
2004,  is  a  revision  of  FASB  Statement  123,  "Accounting  for  Stock-Based
Compensation" and supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees,"  and its related  implementation  guidance.  The  Statement  focuses
primarily on accounting for  transactions  in which an entity  obtains  employee
services  in  share-based  payment  transactions.  SFAS No. 123  (Revised  2004)
requires a public  entity to measure the cost of employee  services  received in
exchange for an award of equity  instruments  based on the grant-date fair value
of the award (with limited  exceptions).  That cost will be recognized  over the
period  during which an employee is required to provide  service in exchange for
the award.  This  statement is effective as of the  beginning of the next fiscal
year that begins  after June 15, 2005 and the Company will adopt the standard in
the first quarter of fiscal 2006. The Company has not determined the impact,  if
any, that this statement  will have on its  consolidated  financial  position or
results of operations.

3.    EARNINGS PER SHARE / STOCKHOLDERS EQUITY

      "Basic  earnings  (loss) per share" is  computed  by  dividing  net income
(loss) by the weighted  average  common shares  outstanding.  "Diluted  earnings
(loss) per share" is  computed  by dividing  net income  (loss) by the  weighted
average  common  shares  outstanding  adjusted for the  incremental  dilution of
potentially  dilutive  securities.  Options to  purchase  approximately  518,000
shares of common stock were  outstanding  during  2005.  Options and warrants to
purchase approximately  1,063,000 shares of common stock were outstanding during
2004. Basic and diluted weighted average shares for the three months ended March
31, 2005 and 2004 are as follows:

                                       8
<PAGE>

                                     Three Months Ended March 31,
                                         2005            2004
                                     -----------     -----------

Basic, Weighted Average Shares         7,086,500       7,175,105
                                     ===========     ===========

Common Stock Equivalents                 124,490         296,154
                                     -----------     -----------
Diluted, Weighted Average Shares       7,210,990       7,471,259
                                     ===========     ===========

      Basic  weighted  average  shares  reflect a reduction  of 940,000  Class B
shares from the settlement of the Vergopia  litigation on March 3, 2005. This is
reflected as Treasury Stock. See Note 8.

      The common stock equivalents are options whose exercise price is less than
the  average  market  price of the common  shares  during the  period.  In 2005,
options to purchase  238,000 shares of Hometown  common stock were excluded from
the  calculation  of diluted  income per share due to the  option  prices  being
greater than the average market price of the common shares during the period. In
2004,  options and warrants to purchase  163,000 shares of Hometown common stock
were excluded from the calculation of diluted income per share due to the option
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 March
31, 2005 and 2004 is $0.04 and $0.01, respectively.

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:

                                     3/31/05     12/31/04
                                    --------     --------
                                       (in  thousands)
New Vehicles                        $ 32,703     $ 33,616
Used Vehicles                          8,208        7,761
Parts, accessories and other           2,019        2,063

                                    --------     --------
   Total Inventories                $ 42,930     $ 43,440
                                    ========     ========

      The lower of cost or market  adjustment was $0.7 million at March 31, 2005
and December 31, 2004, respectively.


                                       9
<PAGE>

5.    INTANGIBLE ASSETS

      As of March 31, 2005 and December 31, 2004,  Hometown's  intangible assets
consisted of the following:

                              3/31/05      12/31/04
                             --------      --------
                                 (in thousands)
Deferred finance charges     $    272      $    272
Accumulated amortization         (126)         (121)
Non-compete agreement             381           381
Accumulated amortization         (349)         (333)
Franchise Fee                      10            10
Accumulated amortization           (3)           (3)
                             --------      --------
   Net intangible assets     $    185      $    206
                             ========      ========


      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.    LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

      Hometown   is   subject   to  certain   financial   covenants   calculated
semi-annually  at June  30th and  December  31st,  related  to its  real  estate
mortgages.  At December 31, 2004,  Hometown was in default of its loan agreement
for Baystate  Lincoln  Mercury for failure to comply with a financial  covenant.
Accordingly,  Hometown has reclassified  $4,239,000 of related long-term debt to
current at March 31,  2005.  Total debt for this  mortgage  at March 31, 2005 is
$4,541,000.  On March 16,  2005,  the lender  notified  Hometown  that it is not
declaring an event of default in connection  with the loan,  however,  reserving
all rights to declare  an event of  default in the future  should the  financial
covenant  default not be cured.  If an event of default was declared and only at
the lenders option,  Hometown could be required to pay all outstanding debt plus
a defeasance  penalty and transaction costs totaling  approximately  $1,400,000.
Although  Hometown  does not believe the lender will call the loan, in the event
it is called,  Hometown believes it would be able to secure alternate financing.
Hometown believes the market value of the property is approximately  $6,200,000.
Hometown  believes it would be able to borrow up to 100% of the market  value of
the property.  Assuming borrowing $6,000,000 at a current variable interest rate
of  approximately  7.44%  for a  15-year  mortgage,  monthly  payments  would be
approximately  $6,800 lower than the current monthly  payments being made on the
property.


                                       10
<PAGE>


8.    COMMITMENTS AND CONTINGENCIES

      Litigation

      During the fourth quarter of 2004, Hometown announced that it had resolved
in principle  to settle the  litigation  matters  described in Footnote 9 in the
Notes to Unaudited  Consolidated Financial Statements as contained in Hometown's
most recent Form 10-Q as filed with the  Securities  and Exchange  Commission on
November 12, 2004.  On March 3, 2005 the  execution and delivery of a settlement
agreement and  applicable  releases of claims from all parties to the litigation
was completed.  The settlement agreement settles all claims made by Salvatore A.
Vergopia and Edward A. Vergopia,  former directors and executive officers of the
Corporation,  and  Janet  Vergopia,  the  wife of  Salvatore  A.  Vergopia  (the
"Vergopias").  The  settlement  also  finally  resolved  the  related  insurance
coverage  litigation  with Universal  Underwriters  Group and The Chubb Group of
Insurance  Companies.  The gross  payment to the Vergopias by all parties was $4
million of which  $600,000  was paid by Hometown in March 2005.  The  settlement
with the Vergopias and the insurers  included an exchange of mutual  releases of
claims  among the parties and a  withdrawal  of all claims  with  prejudice  and
without  costs or  attorneys  fees to any party.  On May 11,  2005,  the parties
completed  the transfer to the  Vergopias of certain  Westwood  Lincoln  Mercury
Sales,  Inc. assets,  including its Lincoln Mercury franchise and have completed
the termination of Hometown's Westwood,  New Jersey lease. Hometown received all
of the 940,000  shares of Class B Common  Stock owned by the  Vergopias in March
2005. The Settlement  Agreement does not constitute an admission of liability or
wrongdoing by any party.

      The 940,000  shares of Hometown stock was recorded at fair market value on
March 3, 2005, the date of the executed settlement agreement,  and is shown as a
reduction of  Stockholders'  Equity as Treasury Stock of $1,043,000.  The assets
and  liabilities  being  transferred  to the  Vergopias  will be  recorded  as a
reduction of those  accounts at book value on May 11,  2005.  At the time of the
filing of this Form 10-Q, the final  accounting for the  transaction has not yet
been completed,  but it is estimated that a gain of approximately  $600,000 will
result from the  transaction.  Hometown wrote off the goodwill  associated  with
this franchise in 2002 and expensed the aforementioned $600,000 March payment in
prior  periods.  At March  31,  2005,  Hometown  has  recorded  a  liability  of
$1,043,000 included in Accounts Payable and Accrued Expenses, pending the assets
and liabilities transfer to the Vergopias.

      Hometown Auto Retailers,  Inc. d/b/a Muller Toyota, Inc. has been named as
one of 1,667  defendants in a complaint  filed by Maryann Cerbo,  et. al. in the
Superior Court of New Jersey in Bergen County and allegedly served upon Hometown
on December 30,  2004.  The action has been brought on behalf of about 111 named
plaintiffs  and,  purportedly on behalf of a class of individuals  and companies
who have  purchased or leased a motor  vehicle from the  defendants.  Plaintiffs
contend that the defendants (a) overcharged for registration  and/or title fees;
(b) failed to properly itemize  documentary  costs and  governmental  costs; (c)
charged grossly excessive  documentary fees not reasonably related to costs; and
(d) failed to disclose that the defendants  are not required to perform  certain
documentary  services.  It  appears  from the  complaint  that  plaintiffs  have
attempted to name as defendants all franchised  automobile  dealers in the State
of New Jersey,  as well as a large  assortment  of other  persons and  entities.
There are no  allegations  that Hometown ever  performed any services for any of
the plaintiffs. The complaint makes certain class action allegations and alleges
violations  of the New  Jersey  Consumer  Fraud Act as well as common law fraud.
Hometown  does not believe  that the  eventual  outcome of this case will have a
material  adverse  effect upon  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

      Hometown may guaranty or partially  guaranty  loans  advanced by financial
institutions to certain  customers.  It is Hometown's policy to provide reserves
for potential future default losses based on available historical information.


                                       11
<PAGE>


      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.  Hometown  recorded  the  lease as a
capital  lease.  As of March 31, 2005 the mortgage debt balance is $4.2 million,
which  agrees to the capital  lease  obligation.  Hometown  makes  annual  lease
payments of $864,000 to the landlord.  The annual mortgage  payments made by the
landlord total approximately $774,000. The mortgage matures March 2013.

      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 March 31, 2005 and December 31, 2004, Hometown has a
reserve of $212,000 and $208,000, 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 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.

                            Balance At  Additions To                Balance At
   Reserve for Policy Work  Beginning    Costs and    Deductions      End of
                             of Year     Expenses                    Quarter
 ------------------------  ----------   ----------   -----------   -------------
 Three Months Ended
 March 31, 2005              $208,000     $204,000     $(200,000)       $212,000

      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
March 31, 2005 and December 31, 2004,  Hometown had $1,117,000 and $1,140,000 of
related deferred revenue, respectively.  During the three months ended March 31,
2005,  these  dealerships  generated  approximately  $83,000 of related warranty
service and  insurance  revenue,  which was  deferred.  During the same  period,
approximately $106,000 of deferred revenue was amortized to Other Revenues, net.
At March 31,  2005 and  December  31,  2004,  Hometown  also had other  deferred
revenue of $261,000 and $319,000, respectively.


                                       12
<PAGE>

      Franchise Agreements

      Toyota Motor Sales,  U.S.A.,  Inc. has extended  Hometown's current Toyota
Dealer Agreement  through May 18, 2005.  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, which has now been settled, including the Vergopia's as
discussed  above.  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, 2004 had  combined  revenues  of $98.1  million and pre-tax
income before  allocation of corporate costs of $2.2 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.;
however,  Toyota has  reserved  the right to  terminate  the  Toyota  Dealership
Agreements  if   sufficient   progress  is  not  made  to  correct  the  alleged
deficiencies.  Should  Hometown  be  notified  by  Toyota  that  they  intend to
terminate the Toyota  Dealership  Agreements,  Hometown believes it would have a
reasonable amount of time to cure the defaults.


                                       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, 2004.

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  8  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.

Three  months  ended March 31, 2005  compared  with three months ended March 31,
2004.

      Units

      The units sold by category for  Hometown for the quarters  ended March 31,
2005 and 2004, are as follows:

                              For the three months
                                ended March 31,
                                 2005       2004
                              ----------  --------
 New vehicle                       1,437     1,496
 Used vehicle - retail               737       915
 Used vehicle - wholesale            693       903
                              ----------  --------
 Total units sold                  2,867     3,314
                              ==========  ========

      Revenue

      Total revenue  decreased $4.1 million,  or 6.2% to $61.8 million for three
months ended March 31, 2005 from $65.9  million for three months ended March 31,
2004.  This  decrease was  primarily  due to decreased  new vehicle  sales ($3.1
million) and decreased sales of used vehicles ($1.3 million) partially offset by
an increase in parts and service  revenues  ($0.2  million)  and other  revenues
($0.1 million).

      Revenue from the sale of new vehicles  decreased $3.1 million,  or 7.5% to
$38.0  million for the three months ended March 31, 2005 from $41.1  million for
three months ended March 31, 2004. The decrease is  attributable  to a reduction
of 59 units sold in 2005  compared to 2004 ($1.6  million)  combined with a 3.7%
decrease in average selling price ($1.5 million). The decrease was primarily due
to the Lincoln Mercury ($4.1  million),  Chevrolet ($0.8 million) and Ford ($0.5
million)  dealerships,  partially  offset by an  increase  at the  Toyota  ($1.6
million)  and  Chrysler/Jeep  ($0.7  million)  dealerships.  The decrease at the
Lincoln Mercury dealerships was primarily due to a decrease of 107 units sold in
2005  compared  to 2004 ($3.8  million)  combined  with a 3.4%  decrease  in the
average selling price ($0.3 million).  The Lincoln Mercury  increase  includes a
decrease  in sales of 55  livery  units  ($1.9  million).  The  decrease  at the
Chevrolet  dealership  was  primarily due to a decrease of 33 units sold in 2005
compared to 2004.  The decrease at the Ford  dealership  was  primarily due to a
decrease  of 27 units sold in 2005  compared to 2004 ($0.7  million),  partially
offset by a 4.4%  increase in the average  selling  price  ($0.2  million).  The
increase at the Toyota  dealerships was primarily due to an increase of 80 units
sold in 2005  compared  to  2004  ($1.9  million),  partially  offset  by a 1.9%
decrease in the average  selling price ($0.3  million).  Included in this was an
increase in fleet sales of $0.4 million due to an increase of 30 units sold. The
Chrysler/Jeep  increase was primarily due to an additional 28 units sold in 2005
compared to 2004.


                                       14
<PAGE>


      Revenue from the sale of used vehicles decreased $1.3 million,  or 7.7% to
$15.6  million for the three months ended March 31, 2005 from $16.9  million for
three  months  ended March 31,  2004.  This was due to  decreased  used  vehicle
revenues  at retail  ($1.2  million),  primarily  due to a decrease of 178 units
($2.6  million),  partially  offset by a 12.8% increase in average selling price
($1.4  million);  plus a  decrease  in used  vehicle  sales at  wholesale  ($0.1
million),  due to a decrease of 210 units ($0.8 million)  partially  offset by a
25.8%  increase  in average  selling  price  ($0.7  million).  The  increase  in
wholesale  average  selling price is a function of the decrease in retail sales.
High  quality  vehicles  that were taken as trade-ins at the time of new vehicle
purchases, were not being sold at retail, necessitating being sold at wholesale.
The decreased  revenues at retail were  primarily due to decreases at the Toyota
($0.8 million),  Chevrolet ($0.4 million) and Lincoln Mercury  dealerships ($0.4
million)  along  with the  closing  of a used car  outlet  ($0.4  million).  The
decrease at Toyota was primarily due to the reduction of 66 units ($1.0 million)
partially offset by a 6.9% increase in average selling price ($0.2 million). The
decrease at  Chevrolet  was  primarily  due to the  reduction  of 43 units ($0.6
million)  partially  offset by a 9.2%  increase in average  selling  price ($0.2
million).  The decrease at Lincoln Mercury was primarily due to the reduction of
41 units ($0.7 million)  partially  offset by a 7.8% increase in average selling
price  ($0.3   million).   Ford  ($0.4   million),   Mazda  ($0.2  million)  and
Chrysler/Jeep  ($0.2  million)  had  increases  in  revenues  at  retail in 2005
compared to 2004.  The increase at Ford was primarily due to a 30.5% increase in
average selling price.  The increase at Mazda was primarily due to an additional
16 units ($0.3  million)  sold in 2005  compared to 2004  partially  offset by a
12.2% decrease in average  selling price ($0.1  million).  Lincoln Mercury ($0.5
million),  Ford  (less than $0.1  million)  and Mazda  (less than $0.1  million)
experienced  decreases in wholesale,  while there were increases at Toyota ($0.2
million), Chevrolet ($0.1 million) and Chrysler/Jeep ($0.1 million).

      Parts and service revenue increased $0.2 million, or 3.3%, to $6.2 million
for the three  months  ended  March 31,  2005,  from $6.0  million for the three
months ended March 31, 2004. The Toyota  dealerships  accounted for $0.1 million
with the remaining $0.1 million spread across the other dealerships.

      Other dealership  revenues increased $0.1 million, or 5.3% to $2.0 million
for the three months ended March 31, 2005 from $1.9 million for the three months
ended March 31,  2004.  The  increase is  primarily  attributable  to  increased
extended service plan income.

      Gross Profit

      Total gross profit  decreased  $0.2 million,  or 2.1%, to $9.3 million for
the three months  ended March 31,  2005,  from $9.5 million for the three months
ended March 31, 2004.  This  decrease was  primarily  attributable  to decreased
gross profit on new vehicle  sales ($0.4  million)  and used vehicle  sales (0.1
million)  partially  offset by increases gross profit on parts and service sales
($0.1 million) other dealership revenues ($0.2 million). Gross profit percentage
for  Hometown  was 15.1% in 2005 and 14.5% in 2004.  Adjusting  both periods for
fleet sales,  which generate low gross profit margins,  gross profit  percentage
was 15.2% in 2004 and 14.5% in 2003.

      Gross profit on the sale of new vehicles decreased $0.4 million, or 14.3%,
to $2.4 million for the three months ended March 31, 2005, from $2.8 million for
the three months ended March 31, 2004. The decrease in gross profit is primarily
attributable  to an 8.2%  decrease in average  gross  profit per  vehicle  ($0.3
million)  combined  with a  reduction  of 59 units ($0.1  million)  sold in 2005
compared to 2004. The unit increase is net of a 39-unit increase attributable to
fleet sales,  which had a minimal  effect on the increase in gross  profit.  All
brands, except for Mazda,  experienced a decrease in gross profit on the sale of
new vehicles in the 2005 period compared to 2004.  Lincoln Mercury accounted for
$0.2 million while all of the other  dealerships  accounted  for the  remainder.
Mazda had a minimal increase. Gross profit percentage for 2005 was 6.4% compared
to 6.7% for 2004.  Adjusting  both periods for fleet sales,  which  generate low
margins,  gross profit  percentage for new vehicles was 6.5% in 2005 compared to
6.7% in 2004.


                                       15
<PAGE>


      Gross profit on the sale of used vehicles decreased $0.1 million, or 5.9%,
to $1.6 million for the three months ended March 31, 2005, from $1.7 million for
the three  months  ended March 31, 2004.  This  decrease is  primarily  due to a
178-unit decrease at retail ($0.3 million),  partially offset by a 7.7% increase
in average gross profit per retail unit ($0.1 million).  Decreases at retail for
Toyota and Lincoln Mercury (together  totaling $0.1 million) and Chevrolet ($0.1
million)  dealerships  were partially offset by increases at the Ford, Mazda and
Chrysler/Jeep  (together  totaling $0.1 million)  dealerships.  The closing of a
used car outlet in 2004 accounted for an additional  $0.1 million.  The decrease
at Toyota was primarily due to a decrease of 66 units ($0.1 million),  partially
offset by a 16.0%  increase  in  average  gross  profit per unit (less than $0.1
million).  The decrease at Lincoln  Mercury and Chevrolet was primarily due to a
decrease  of 41 units  and 45  units,  respectively.  The  increase  at Ford and
Chrysler/Jeep  was  primarily  due to an  increase in average  gross  profit per
vehicle of 34.9% and 1.4%, respectively. The increase at Mazda was primarily due
to an increase of 16-units  sold in 2005  compared to 2004.  Gross profit on the
sale of used  vehicles at wholesale  increased  $0.1 million to $0.2 million for
the three months  ended March 31,  2005,  from $0.1 million for the three months
ended March 31, 2004.  The  increase in wholesale  gross profit is a function of
the decrease in retail sales. High quality vehicles that were taken as trade-ins
at  the  time  of  new  vehicle  purchases,  were  not  being  sold  at  retail,
necessitating  being sold at wholesale.  Gross profit  percentage on the sale of
used vehicles was 10.0% in 2005 compared to 9.9% in 2004.

      Parts and service gross profit  increased  $0.1 million,  or 3.1%, to $3.3
million for the three  months  ended March 31,  2005,  from $3.2 million for the
three months ended March 31, 2004. The increase is due to the increased  revenue
described above.  Gross profit percentage was 53.5% in 2005 compared to 53.7% in
2004.

      Selling, General and Administrative Expenses

      Selling,  general and administrative  expenses decreased $0.6 million,  or
7.0%,  to $8.0  million  for the three  months  ended  March 31,  2005 from $8.6
million for the three months ended March 31,  2004.  The decrease was  primarily
due to decreases in salaries and employee  benefits  ($0.3  million),  legal and
other  professional  fees ($0.1 million),  rent ($0.1 million) and various other
costs ($0.1  million).  Included in these  selling,  general and  administrative
expense reductions was approximately $0.1 million associated with the closing of
the used car lot.

      Interest Expense

      Interest  expense  increased $0.1 million,  or 12.5% to $0.9 for the three
months  ended March 31, 2005 from $0.8  million for the three months ended March
31, 2004.  The increase is primarily  attributable  to an increase in floor plan
interest expense resulting from an increase in interest rates.

      Provision for income tax

      The  effective  income tax rate was 40.3% in the  quarter  ended March 31,
2005 and 27.1% in the same  period  of 2004.  The rates  were  based on  current
forecasts of income before taxes, and current forecasts of permanent differences
between tax and book income.  The 2005 rate reflects the expected  effective tax
rate for the year.  The 2004 rate reflects the expected full year  effective tax
rate of 40% adjusted for a reduction in the valuation allowance  associated with
the 2004  amortization  of  goodwill  for tax  purposes.  At  December  31, 2004
deferred  taxes were adjusted  primarily to reflect a reduction of the valuation
allowance  on the  deferred  tax asset due to the ability to project  sufficient
income to  recover  the  deferred  tax  asset.  Deferred  taxes,  including  the
valuation allowance, will be reviewed throughout fiscal 2005.

      Net Income

      Net income  increased  $0.2  million to $0.3  million for the three months
ended March 31,  2005 from $0.1  million  for the three  months  ended March 31,
2004. See above for explanation of the improvement.


                                       16
<PAGE>


      Earnings Per Share, Basic and Diluted and Weighted Average Shares

      "Basic  earnings  (loss) per share" is  computed  by  dividing  net income
(loss) by the weighted  average  common shares  outstanding.  "Diluted  earnings
(loss) per share" is  computed  by dividing  net income  (loss) by the  weighted
average  common  shares  outstanding  adjusted for the  incremental  dilution of
potentially  dilutive  securities.  See  Note  3 to the  unaudited  consolidated
financial statements.

      The basic and diluted  income per share for the three  months  ended March
31, 2005 and 2004 is $0.04 and $0.01, respectively.

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 business,  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.

Effects of Inflation

      Due to the relatively low levels of inflation  experienced in the 2005 and
2004  periods,  inflation  did not have a  significant  effect on the results of
Hometown during those periods.


                                       17
<PAGE>


Liquidity and Capital Resources

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

Cash  and Cash Equivalents

      Total cash and cash equivalents was $5.3 million and $6.1 million at March
31, 2005 and December 31, 2004, respectively.

Cash  Flow from Operations

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

                                               Three months ended
                                                    March 31,
                                                  2005     2004
                                               ---------- --------
                                                  (in thousands)

      Net cash provided by (used in)
        operating activities                   $    (481) $    834
      Net cash (used in) investing activities        (57)      (94)
      Net cash (used in) financing activities       (227)     (560)
                                               ---------- --------
      Net increase (decrease) in cash and
        cash equivalents                       $    (765) $    180
                                               ========== ========

      For the three months ended March 31, 2005,  net cash used in operations of
$0.5 million primarily  consists of: (i) the increase in accounts  receivable of
$1.2 million, (ii) a decrease in accounts payable, accrued expenses and deferred
revenues of $0.5  million and (iii) an  increase in prepaid  expenses  and other
assets of $0.2 million;  partially  offset by net income plus non-cash  items of
$0.8 million plus the  decrease in inventory of $0.6  million.  Net cash used in
investing  activities of $0.1 million is due to capital  expenditures.  Net cash
used in financing  activities  of $0.2  million is due to principal  payments of
long-term debt and capital lease obligations of $0.4 million partially offset by
proceeds from long-term borrowings of $0.2 million.

      For the  three  months  ended  March  31,  2004,  net cash  provided  from
operations of $0.8 million  primarily  consists of: (i) net income plus non-cash
items of $0.4  million;  (ii) the increase in floor plan  liability in excess of
the increase in inventory of $0.7 million; (iii) an increase in accounts payable
and  accrued  expenses  of $0.5  million;  partially  offset by the  increase in
accounts  receivable of $0.7 million.  Net cash used in investing  activities of
$0.1  million  is due to  capital  expenditures.  Net  cash  used  in  financing
activities  of $0.6 million is due to principal  payments of long-term  debt and
capital lease obligations.

      Capital Expenditures

      Capital  expenditures  for fiscal 2005 are  expected  to be $0.3  million,
consisting   primarily  of  equipment   purchases  and  building  and  leasehold
improvements.

      Receivables

      Hometown  had $6.3  million  in  accounts  receivable  at March  31,  2005
compared to $5.1 million at December 31, 2004.  The increase in  receivables  is
due to the increase in sales that takes place in March compared to December. The
majority of those  receivables,  $3.0  million and $2.4  million as of March 31,
2005 and December 31, 2004,  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 March
31, 2005 and December 31, 2004.

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<PAGE>

      Inventories

      Hometown had $42.9 million in inventories,  net at March 31, 2005 compared
to $43.4 million at December 31, 2004. The majority of inventory,  $32.7 million
and $33.6 million as of March 31, 2005 and December 31, 2004,  respectively,  is
new vehicle inventory.  New, used and demonstrator  vehicle values 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.  Hometown  assesses  the  lower  of cost or  market  reserve
requirement for vehicles, on an individual unit basis, taking into consideration
historical  loss rates,  the age and  composition  of the  inventory and current
market  conditions.  The lower of cost or market  adjustment was $0.7 million at
March 31, 2005 and December 31, 2004.

      Floor Plan Financing

      See Note 6 to the unaudited consolidated financial statements.

      Long-Term Debt and Capital Lease Obligations

      See Note 7 to the unaudited consolidated financial statements.

      Commitments and Contingencies

      See Note 8 to the unaudited consolidated financial statements.

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.


                                       19
<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 March 31, 2005 of $42.6 million,  a 1% change
in the prime rate would  result in a $0.4  million  change to annual  floor plan
interest expense.

      At March 31, 2005, Hometown invested $2.6 million of excess cash, of which
$0.1  million was invested in money market  accounts  paying a weighted  average
interest  rate of 1.23% at March 31,  2005,  and $2.5  million was invested in a
Ford Motor Credit Company cash  management  account paying  interest of 6.50% at
March 31, 2005. 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 March 31, 2005, 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.


                                       20
<PAGE>

                           PART II. OTHER INFORMATION


ITEM 1.     LEGAL PROCEEDINGS

            See Note 8 - Commitments  and  Contingencies  -  Litigation,  to the
            notes to the unaudited consolidated financial statements.

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

            NONE

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

            NONE

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

            NONE

ITEM 5.     OTHER INFORMATION

            NONE

ITEM 6.     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

                                       21
<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.


      May 12, 2005                              By: /s/ Corey E. Shaker
      ------------------------                      ------------------------
      Date                                      Corey E. Shaker
                                                President and Chief Executive
                                                Officer

      May 12, 2005                              By: /s/ Charles F. Schwartz
      ------------------------                      ------------------------
      Date                                      Charles F. Schwartz
                                                Chief Financial Officer


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