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                                                                    EXHIBIT 10.4

                              EMPLOYMENT AGREEMENT



AGREEMENT DATE:                             JANUARY 1, 1996


COMPANY:                                    UGLY DUCKLING HOLDINGS, INC.
                                            AN ARIZONA CORPORATION
                                            2525 EAST CAMELBACK ROAD, SUITE 510
                                            PHOENIX, ARIZONA 85016


EMPLOYEE:                                   ERNEST C. GARCIA II
                                            4330 NORTH 57TH WAY
                                            PHOENIX, ARIZONA 85018


                                    RECITALS

         The parties acknowledge that the following recitals are true, correct
and a material part of this Employment Agreement (this "Agreement"):

         1. Employee founded the Company and is the sole director, Chief
Executive Officer and the largest shareholder of the Company.

         2. Employee's management of the Company is critical to its success and,
therefore, Company seeks to employ Employee on a long term basis.

         3. Employee is willing to be retained as an employee and to continue
managing the Company on a long term basis under the terms and conditions of this
Agreement.

         NOW, THEREFORE, in consideration of the covenants, representations and
warranties of the parties stated herein, the performances of the parties
required hereby and the benefits to be obtained by the parties herefrom, Company
and Employee mutually agree and expressly intend to be legally bound as follows:

SECTION 1. EMPLOYMENT. Commencing on the Agreement Date, Company shall employ
Employee on a full-time basis to render the services required by this Agreement
(the "Services"). Employee shall render the Services faithfully, promptly and
professionally as a full-time employee of the Company. Subject to the foregoing
and to Section 6.3 hereof, Company acknowledges that Employee may own other
companies and businesses from time to time and that Employee shall also render
services to such other companies and businesses.
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SECTION 2.  OBLIGATIONS OF EMPLOYEE

         2.1 SERVICES. The Services rendered by Employee shall be rendered in
compliance with all applicable laws and the instructions of the board of
directors of the Company (the "Board"). The Services to be rendered by Employee
include, but may not be limited to, the following:

                  2.1.1 Officer. Employee shall serve as the Chief Executive
         Officer of the Company and as the Chairman of the Board. Employee shall
         report to the Board regarding the operation of the Company. Employee
         shall administer the day-to-day operation of the Company, utilizing the
         means, methods and procedures recommended by Employee, but subject to
         approval by the Board. Employee shall execute and perform all lawful
         and reasonable directives and orders of the Board regarding the
         administration and operation of the Company.

                  2.1.2 Other Services. Employee shall perform and provide all
         other services and duties customarily performed and provided by the
         chief executive officer of a commercial enterprise and all other
         services and duties reasonably required by the Board.

SECTION 3.  COMPANY OBLIGATIONS.  Company shall provide the following to 
Employee for use and utilization by Employee in connection with, in support of, 
and for the benefit of, the Services of Employee.

         3.1 OFFICES. The Company shall maintain such offices and all equipment,
supplies, furniture and fixtures as may be reasonably required by Employee to
perform the Services.

         3.2 PERSONNEL. The Company shall employ or retain such personnel as may
be reasonably required by Employee to perform the Services and as may be
reasonably required to operate all businesses of the Company (the "Personnel")
and Company shall be responsible for the compensation of all Personnel.

         3.3 INSURANCE. The Company shall maintain such general liability and
casualty insurance as may be reasonably required by and available to the
Company. Employee acknowledges that the Company does not currently maintain
insurance coverage for the errors and omissions of the directors and officers of
the Company. The Company shall forever indemnify Employee for liabilities
incurred by Employee as a director or officer of the Company in accordance with
the Articles and Bylaws of the Company and any Indemnity Agreement between
Employee and Company.

         3.4 OTHER. The Company shall provide other items and services that may
be requested by Employee and that are reasonably required by Employee to perform
the Services and to operate all businesses of the Company.

SECTION 4.  COMPENSATION.  Company shall compensate Employee for the Services 
rendered by Employee pursuant to this Agreement by paying and providing to 
Employee all of the following:


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         4.1 SALARY. Employee shall receive an annual salary of One Hundred
Twenty Thousand Dollars ($120,000.00) (the "Salary"). The Salary shall be
payable in arrears in equal regularly scheduled installments commencing on the
first regular payday of the Company after the Agreement Date. On January 1,
1997, and on each January 1 thereafter during the term of this Agreement, the
Salary shall be increased by an amount established by the Board, but in no event
less than ten percent (10.0%) of the Salary during the prior calendar year.

         4.2 INSURANCE BENEFITS. Employee shall be insured by and included in
the group medical insurance policy and the group life policy maintained by the
Company for its employees. All insurance benefits shall be provided under the
terms and conditions stated in the policies therefor and all deductibles,
co-payments and other charges payable by the insured thereunder shall be paid by
Employee without reimbursement by the Company.

         4.3 VACATION BENEFITS. Employee shall be entitled to thirty (30)
business days during each calendar year for vacation, personal business or any
other purposes ("Vacation Days"). Vacation Days not taken in one calendar year
shall not accumulate and shall not be taken in a subsequent calendar year and no
compensation shall be payable to Employee for Vacation Days not taken.

         4.4 VEHICLE ALLOWANCE. The parties acknowledge that Employee will be
required to travel to perform the Services. The Company shall provide to
Employee a suitable vehicle to drive for travel (the "Company Vehicle").
Employee shall use the Company Vehicle in accordance with Company Vehicle
policies and procedures. Alternatively, Employee may elect to use his own
vehicle for travel in performance of the Services (the "Personal Vehicle"). If
Employee elects to use his Personal Vehicle, then Employee shall insure all use
and operation of the Personal Vehicle, including use in performing the Services,
against liability and property damage to others with limits not less than Three
Hundred Thousand Dollars ($300,000.00) for liability and Twenty-Five Thousand
Dollars ($25,000.00) for property damage. Such insurance shall be primary to any
insurance maintained by Company and Company is not required to insure Employee's
use and operation of his Personal Vehicle. If Employee elects to use his
Personal Vehicle in performance of the Services, then Company shall pay to
Employee each month Five Hundred Dollars ($500.00) plus the mileage allowance
authorized by the Internal Revenue Service for each mile driven by Employee
using his own Personal Vehicle in performance of the Services (the "Vehicle
Allowance"). Employee shall maintain and provide to Company adequate records of
Employee's use of his Personal Vehicle in accordance with Company's mileage
reimbursement policies.

         4.5 EXPENSES. Company shall reimburse Employee for reasonable and
necessary expenses incurred by Employee in performing Services in accordance
with Company's expense reimbursement policies.

         4.6 WITHHOLDINGS. All installments of the Salary and all other funds
paid to Employee pursuant to this Section 4 shall have withheld therefrom all
federal and state income taxes and all other amounts that the Company is
required by law to withhold.


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SECTION 5.  TERM AND TERMINATION.

         5.1 TERM. The term of this Agreement (the "Term") shall commence as of
the Agreement Date and shall expire on December 31, 1998, unless terminated
prior thereto. Neither party has any obligation to extend the Term of this
Agreement upon its expiration. If a party does not intend to extend the Term of
this Agreement beyond its expiration, then said party shall notify the other
party of its intention not to extend the Term by delivery of written notice
thereof sixty (60) or more days prior to the expiration of the Term or any
renewal of the Term. If neither party gives timely written notice of its
intention not to extend the Term, then the Term of this Agreement shall
automatically be extended and continued year-to-year. If this Agreement is
automatically extended year-to-year, then it may be terminated thereafter only
in accordance with the terms hereof.

         5.2 TERMINATION BY EMPLOYEE. Employee may terminate this Agreement at
any time by delivery of written notice of termination to Company thirty (30) or
more days prior to the effective date of the termination. If Employee terminates
this Agreement then the Company shall continue all compensation of Employee
through the effective date of termination. If Employee terminates this Agreement
due to the material default or breach of Company hereunder, then Company shall
also compensate Employee for all damages suffered or incurred by Employee as a
result of the default or breach of Company hereunder.

         5.3 TERMINATION BY COMPANY.  Company may terminate this Agreement as
follows:

                  5.3.1 Termination Without Cause. Company may terminate this
         Agreement at any time and without cause by delivery of written notice
         to Employee thirty (30) or more days prior to the effective date of the
         termination. If Company terminates this Agreement without cause, then
         Company shall continue all compensation of Employee for twelve (12)
         full calendar months after the effective date of the termination, and
         such continuation of all compensation shall discharge all liability of
         Company to Employee in connection with the termination of this
         Agreement.

                  5.3.2 Termination With Cause. Company may terminate this
         Agreement in the event of a material default or breach hereof by
         Employee and the failure of Employee to cure the material default or
         breach, if capable of being cured, within thirty (30) days after
         delivery to Employee of written notice of the material default or
         breach hereof by Employee. If Company terminates this Agreement with
         cause, then Company shall continue all compensation of Employee through
         the effective date of the termination but Employee's compensation need
         not be continued after the effective date of the termination.

                  5.3.3 Disability. If Employee is unable to perform the
         Services on a full-time basis for one hundred eighty (180) consecutive
         days, whether due to illness, injury or any other reason, Employee
         shall be deemed disabled. In such event, Company may terminate this
         Agreement and Employee's compensation shall not be payable after the
         effective date of termination. This Section 5.3.3 is not intended to
         effect any disability benefits that Employee may be entitled to under
         any governmental or private disability benefits


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         program but Company does not make any representations or warranties 
         regarding the effect of this Section 5.3.3 on any governmental or
         private disability benefits program.

SECTION 6.  CONFIDENTIALITY, PROPERTY AND NON-COMPETITION.

         6.1 CONFIDENTIALITY. Employee acknowledges that all non-public
information regarding the Company may be a business secret and that the
confidentiality thereof may be a valuable right of the Company. At all times
during and after the term of this Agreement, Employee shall maintain the
confidentiality of all such information and shall not disclose such information
without the prior written consent of the Board, unless required by law.
Information shall not be deemed confidential if it is in the public domain or is
subsequently obtained by Employee from independent sources and not otherwise
subject to confidentiality restrictions.

         6.2 PROPERTY. Employee acknowledges that all tangible and intangible
property of Company, including but not limited to, records, files, data,
contracts and information regarding employees and customers belong exclusively
to Company and Employee shall not own nor acquire any interest therein. Employee
shall not remove any of the property of Company without the prior written
consent of the Board and upon expiration or termination of this Agreement all
such property in the possession of Employee shall be immediately surrendered and
returned to Company.

         6.3 NON-COMPETITION.

                  6.3.1 During Agreement. During the term of this Agreement
         Employee shall not, directly or indirectly, own any interest in, be
         employed by or render any services to any business that then competes
         with the Company, other than the ownership of not more than five
         percent (5%) of the publicly traded securities of any company.

                  6.3.2 After Agreement. Except in the event of termination of
         this Agreement by Employee due to the material default or breach of
         Company, for twelve (12) months after the effective date of termination
         of this Agreement Employee shall not, directly or indirectly, own any
         interest in, loan money to, be employed by or render any services to
         any business that then competes with the Company, other than the
         ownership of not more than five percent (5%) of the publicly traded
         securities of any company. If Employee terminates this Agreement due to
         the default or breach of Company, there shall be no restrictions on
         Employee's activities and Employee may compete with the Company.

         6.4 ENFORCEMENT. Employee acknowledges that the Company may incur
substantial, irreparable, immediate and continuing harm if any of the covenants
of Employee stated in this Section 6 are violated and that monetary awards may
not be adequate remedies for the violations. Therefore, Employee acknowledges
and agrees that equitable remedies may be sought and obtained by the Company,
including, but not limited to, temporary and permanent restraining orders and
injunctions, to enforce the covenants of Employee stated in this Section 6.

SECTION 7.  GENERAL PROVISION.


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         7.1 NOTICES. All notices and communications hereunder shall be in
writing and shall be given by personal delivery or mailed first class,
registered or certified mail, postage prepaid, and shall be deemed received upon
the earlier of actual delivery or three (3) business days after deposit in the
United States Mail. Notices to the parties shall be delivered or mailed to the
addresses set forth in this Agreement.

         7.2 ATTORNEY'S FEES. In the event any party hereto finds it necessary
to bring an action at law or other proceeding against the other party to enforce
any of the terms, covenants or conditions hereof or any instrument executed
pursuant to this Agreement, or by reason of any breach hereof, the party
prevailing in any such action or other proceedings shall be paid all costs and
reasonable attorneys' fees by the defaulting party, and in the event any
judgment is secured by such prevailing party, all such costs and attorneys' fees
shall be included in any such judgment, with attorneys' fees to be set by the
court and not by the jury.

         7.3 TIME. Time is of the essence of this Agreement. However, if any
action is required to be taken on a Saturday, Sunday or legal holiday, the
action shall be deemed timely taken if it is taken on the next regular business
day.

         7.4 LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona. Any action brought in
connection with this Agreement shall be brought and prosecuted in a federal or
state court of competent jurisdiction in Arizona.

         7.5 LIABILITY OF AFFILIATES. The parties acknowledge that this
Agreement is made exclusively between Company and Employee and that the
shareholders, directors, officers, employees or agents of the Company shall not
have any liability under this Agreement.

         7.6 NEGOTIATIONS AND INTEGRATION. The terms and provisions of this
Agreement represent the results of negotiations between the parties.
Consequently, the terms and provisions of this Agreement shall be interpreted
and construed in accordance with their usual and customary meanings, and the
parties hereby waive the application of any rule of law to the effect that
ambiguous or conflicting terms or provisions contained in this Agreement shall
be interpreted or construed against the party whose attorney prepared the
executed draft or any earlier draft hereof. All understandings and agreements
between the parties are merged in this Agreement which alone fully and
completely expresses their agreement. This Agreement is entered into after full
investigation, neither party relying upon any statements or representations made
by the other not embodied in this Agreement. To the extent inconsistent
therewith, this Agreement supersedes all personnel policies of Company.

         7.7 ASSIGNMENT AND MODIFICATION. This Agreement may not be assigned,
delegated or subcontracted by Employee at any time. This Agreement may not be
assigned by Company except in connection with the sale of the Company, whether
by merger, sale of assets or otherwise, to a transferee that expressly assumes
this Agreement and that is able to perform the obligations of Company hereunder.
This Agreement may not be changed orally, but only by an agreement in writing,
signed by the parties.


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         7.8 SEVERANCE. If any provision of this Agreement or the application of
such provision to any person or circumstance shall be held invalid, the
remainder of this Agreement, or the application of such provision to persons or
circumstances other than those to which it was held invalid, shall not be
effected thereby.

         7.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
parties hereto, their successors and assigns. However, nothing herein shall be
deemed to permit assignment except in strict accordance with the provisions of
this Agreement.

         7.10 COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same Agreement.

         IN WITNESS WHEREOF, the parties hereby acknowledge their receipt,
review, understanding and acceptance of every provision of this Agreement
effective as of the Agreement Date.

Company:                                    Ugly Duckling Holdings, Inc.,
                                            an Arizona corporation

                                            By:      /s/ STEVEN P. JOHNSON
                                                  -----------------------------
                                            Name:        STEVEN P. JOHNSON
                                                  -----------------------------
                                            Its:         SR. V.P.
                                                  -----------------------------


Employee:                                     /s/ ERNEST C. GARCIA II
                                            -----------------------------------
                                            Ernest C. Garcia II


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