The Record industry's crisis is finally over. Sales are up, new releases are receiving acclaim and customers are back in the stores, but the past few months have changed the buying habits of most Washingtonians. And the way records are sold may never be the same.

It all began optimistically last December when, inspired by the most profitable year in recording history, CBS raised the list price on most of its new releases to al all-time high of $8.98. The rest of the industry followed suit.

But instead of a bonanza, sales immediatley began to plummet. Profits, which had soared last year with the huge and unexpected success of "Saturday Night Fever," Fleetwood Mac and "Grease," dropped disastrously.RCA Records alone reportedly lost $12 million to $15 million in the second quarter of this year. The industry laid off 600 employes. Clive Davis, president of Arista Records, in an open letter in Billboard Magazine to Joe Smith, chairman of the board of Electra/Asylum Records, blamed the slump on "mismanagement" and the "manic, grab-bag approach to operations."

The industry finally responded late this summer. CBS, the undisputed leader in wholesale sales in the $4.1-billion industry, cut the list price on more than 350 albums from $7.98 $5.98. Capital, Mercury, MCA and Infinity followed, and RCA set a price of $4.98 on some of its weaker catalog material.

It wasn't much help to local dealers still suffering from the sales collapse -- and especially not to those with large stocks of records, like Mike Sheble of Penguin Feather, who was unable to get credit for purchases under the old price and was obliged to absorb the difference.

But things are getting better. Buddy Poms, owner of Sights and Sounds Records in Gaithersburg, and many others of the more than 100 store owners in the area, agreed that they were saved by the release of several blockbusters during the past two months. September, notoriously a bad month in Washington because the majority of the customers leave for college, became a boom time with swelling sales of Led Zeppelin's "In Through the Out Door," the Eagles' "The Long Run" and "Dream Police" by Cheap Trick.

But while sales are coming back, the sudden and severe spasm in what was always considered a recession-proof market has changed the way dealers are selling and customers are buying. Discounting of top releases is on the increase: Penguin Feather, copying Kemp Mill Records, sponsored an all-label, all-record sale last month and sales increased substantially. Record and Tape Limited reduced the CBS price on old Streisands, Jeff Beck and the rest of the lowered catalog merchandise to $3.79.

And dealers, already in hot competition for a larger share of the projected $194-million Washington record market, began to scramble for sales alternatives. Used-record stores began sprouting up all over the suburbs. Established dealers began pushing "cut-outs." And sales of promotional records and blank tape increased -- all to bring costs down and keep customers buying. Used Records

"Used records are as easy as pie if you know records and find out what to pay for them," said Joe Lee, owner of Joe's Record Paradise in Takoma Park. "And you don't have to worry about the next move the record comanies are going to make when you deal in them."

Gregg Bryce, considered locally to be the granddaddy of the used-record movement, opened the first Record and Tape Exchange in College Park three years ago. His records, with a moneyback guarantee, sell for 99 cents, $1.99 and $2.99, and range from early Beatles to the more obscure jazz and pop artists many top-100 record stores don't normally carry.

"We're operating on the fringes of the record business," Bryce said, "the little vacuum at the edge."

Bryce's supplier is the public -- "People come in with huge piles of discs and tell me, 'I can't listen to rock 'n' roll anymore. I listen to jazz or classical now.' Or, 'I put these records on tape.' Or, especially at the end of the month, 'I need the money.' "

Bryce and his staff will pay up to $1 for each used record, depending on quality. "I take 15,000 a month and there's only 10 or 15 percent I can't [evaluate] by looking. If a record has four cuts that look bad, I have to listen to each of them. But people are keeping their records in mint condition these days and there's no end to supply."

Because of the demand, more than a dozen used-record stores opened in the area during the past year. And even Kemp Mill, an established new-release chain with 12 stores, moved into the used record business in April. Darryl Sherman, one of the chain's four owners, said his customers "buy one new and one used. And when they swap four of their used records, they get a new one with us."

Ads in the Unicorn Times asking for used records have brought in thousands of copies, Sherman said, and even though the chain doesn't guarantee their used records, the demand is so great they now have two full-time employes who do nothing but buy old records.

At Backstreet Records in Wheaton, 99 percent of the stock is used records. Tom Beach, co-owner of the year-old store, explains why: "It can cost an independent dealer $4.30 for a record Korvettes pays $3.75 for, so it's hard to be competitive with the big guys. But we can buy a Jimi Hendrix album for $1 and sell it for $3."

Beach believes used records are the wave of the future," and noticed that, during the past six months, his customers began to "get older and straighter." Cutouts and Promos

Despite the advantages, Waxie Maxie record buyer Kenny Dobin said he "wouldn't touch" used records: "We couldn't guarantee them, and a no-return policy makes customers unhappy."

Instead, Dobin -- along with a majority of both new and used record store owners -- relies on sales of "cut-outs" (the overstocked records released by the companies with the corner lopped off, or cut out).

"They are very important with us," said Dobin, who stocks more than 10 percent of his stores with cut-outs for which he pays from 25 cents to $2.50. "We get the best stuff, and it's a good way for us to increase the average sale. A customer sees a formerly great album for $1.99 or $2.99 and buys it. Our profit margin is higher because of it."

CBS records representative Jane Berk said the current interest in cut-outs and used records "is good for the industry. People are buying them because of the increased awareness in the history of rock 'n' roll. A lot of old records that are really important, you just can't get anymore."

But the record companies are not pleased with the increase in sales of another sideline -- complimentary promotional records sent to stores and radio stations.

The sales bins in about 20 percent of area's independent record stores now contain albums marked "Not for Sale, Promotional Copy Only" and "Ownership Reserved by CBS, Sale Is Unlawful" embossed on labels. Record companies have started sending out warnings to dealers who sell them.

"A dealer is just not supposed to buy them, it's unlawful," said Bob Altshuler, vice president of press relations at CBS. Most larger chain stores who deal directly with record companies go along with that edict; but many others, especially the small, independent dealers, don't. And some have it both ways: Super Records in Silver Spring sells promotional records with the "Not for Sale" warning pasted over with another sticker that says, "Sealed for your protection."

Joe Lee, who does 75 percent of his business in promos, believes there is nothing wrong with the practice. "When you're giving someone a promotional record, it's not a contract, they haven't signed anything. Record companies always send every type of record to a radio station. But why would [a jazz station] want a Rolling Stones record? So a deejay comes down and trades with me, or else I buy it."

Lee has seen promos sold in record stores since he worked in California in the early '70s. But he noted a sharp increase in supply when the cost of records went up. "Most deejays we deal with only make minimum wage. They're just trying to supplement their income and keep up with the music world."

Lee said company representatives have watched his store in order to see who is selling promos to him, and once received a warning from CBS cautioning him against selling them and "threatening legal action."

"The record companies are doing it to themselves," Lee insists."When the price is so high, we have to look for alternative merchandise to get a profit. If you buy for less, you can sell for less."

Last month, Ron Eubanks, district manager for Capital Records, went into Buddy Poms' Sights and Sounds Records in Gaithersburg and began pulling copies of Capitol's promotional records off the shelves. After a brief altercation, Eubanks was escorted to the door. Poms insists that selling promos is legal, and said Eubanks' action was "unwarranted." Neither Eubanks nor Capitol would answer inquiries about the incident, but Capitol Records marketing vice president Dennis White said the company "frowns upon the practice" of selling promos. Bootlegs and Blank Tape

Competition was also said to be the cause of a police raid in June on Backstreet Records in Wheaton, in which Montgomery County police confiscated 300 promotional albums and 34 alleged "bootleg" albums.

Beach and co-owner Jay Herron insist they got the records from customers and from yard sales sponsored by churches in the area. "They were just used records to us," Beach insists.

Bootlegs are the nemesis of record companies, and CBS alone is spending "a lot of money to stop this practice" according to CBS's Altshuler. Consequently, bootleggers are becoming more adept at disguise. A bootleg Bob Dylan album entitled "Stealin," purchased in a local store recently, carried the label of Berkeley Records, Ltd., London. Neither CBS, Dylan's label, nor record industry sources had ever heard of Berkeley. cOther bootleg issues have German or Japanese labels to conceal the fact they were actually made in New Jersey or California.

Dealers pay anything from $2.50 to $3.75 for a bootleg they can turn around and sell for $5 to $11. Due to the recent police crackdowns on several suppliers on both coasts, however, sources are drying up for the handful of stores in this area who carry bootlegs.

But an even greated form of piracy, the industry believes, will come from blank tapes. Last year more than $200-million worth of blank tape was sold in the United States, and local stores say their sales are stronger that ever.

"We don't encourage people to tape," said Sheble, "but at $1.99 to $4.99 for tape, it's got tremendous appeal. I would say it's the biggest threat to the business we've got."

Altshuler said the record industry is drafting proposed legislation to force the manufacturers of blank tape to pay a royalty on all tape sold. The royalties would go into a pool to be divided among composers, publishers, record artists and companies.

Independent record store owners say that this "narrow look at the industry" would damage their survival, and that added "surcharges" would cut their profits even further -- in a market in which, according to Beach, "you have a product that gets more expensive all the time while the quality is worse every day."

Most top-100 dealers say that one of their biggest problems is defective records. "It's terrible -- how can we sell a record when a customer has to keep bringing it back to us?" said Dobin. "More than 10 percent of our new records are warped."

Dobin was irked when he learned that the record companies, as part of their new policy changes, are planning to limit the number of records a store can return to the company.

Due to "changing economic and market conditions" -- and to the fact that stores returned millions of albums they couldn't sell earlier this year -- CBS and Polygram, two of the biggest sellers in the industry, announced that beginning in January, stores will be permitted to return no more than 22 percent of any records purchased by a dealer. Dealers say it would force them to cut down on the number of records they order. "This may have a devastating effect on new artists," one owner complained.

But while some dealers say the recent company policies will hurt the industry as a whole, Kemp Mill's Sherman calls them "the best thing that happened to the record business. If the dealers don't have the ability to bend, they're on their way out of business anyway."