May 9, 2001


KZH Soleil - 2 LLC
c/o The Chase Manhattan Bank
140 East 45th Street - 11th Floor
New York, NY 10017

Galaxy CLO 1999-1, Ltd.
c/o Chase Bank of Texas, National Association
600 Travis Street - 48th Floor, 48-CTH-304
Houston, TX  77002

Sun America Life Insurance Company
1 SunAmerica Center - 34th Floor
Century City
Los Angeles, CA  90067-6002


RE: Ugly Duckling  Corporation Senior Secured Loan Agreement Dated as of
    January 11, 2001


Dear Sirs:

With  this  letter we are  requesting  a waiver of the  Minimum  Other  Interest
coverage ratio contained in Section 6.18 of the above  referenced loan agreement
for the  quarter  ended  March 31,  2001.  We are in  compliance  with all other
covenants of the agreement.

The reason for the  shortfall in this covenant in the quarter is due to a number
of  changes  we are  making in the  business  to  improve  long  term  portfolio
performance. These changes include:

1. Enhancing  underwriting  criteria  by  increasing  down  payment requirements
   beginning  in  January   of 2001,  resulting  in  slower  sales,   a  smaller
   portfolio  than  forecasted  and  lower  interest  income  from  the  smaller
   portfolio.

2. The moving of our 31 to 60 day collectors to the dealership, resulting in the
   closure of two  collection  centers and an after-tax  charge of  $368,000 for
   the quarter.

3. The increase of loan loss reserves to the balance sheet resulting from higher
   than expected losses from older portfolios and a smaller base of originations
   in the first quarter of 2001, as previously discussed.

In light of these changes and the impact to our  profitability in the first four
months of 2001, the "B-piece"  contracts  securing your loan continue to perform
at historically high levels.  Cash generated from these loans through April 2001
was $34.1  million or a 14% increase  over last year.  Overall in April of 2001,
the portfolio showed improvements versus year ago of 1.5% in the current bucket,
1.79%  in the 1 to 30 day  bucket  and  .02%  in  the 31 to 60 day  bucket.  The
portfolio  declined  .32%  in the 61 to 90 day  bucket.  With  the  movement  of
collectors  to the  dealerships  we expect to see continued  improvement  in our
delinquencies throughout the year.

In addition  to the  improvements  in the  portfolio,  we closed our  nineteenth
receivables  securitization at the end of March with a loan principal balance of
$117.7 million and Class A bonds issued of $83.6 million. In early April we also
entered into an agreement with Greenwich  Capital  Financial  Products,  Inc. to
provide up to $100 million in a warehouse receivables line of credit.

Thank you for your time and  consideration.  I have  provided  an area below for
your signature authorizing the waiver. Please call me with any further questions
at 602-852-6635.


Sincerely,


/s/ BOB FULTON
-------------------------
Bob Fulton
Treasurer
Ugly Duckling Corporation

<PAGE>

The undersigned hereby waive the covenant requested:

KZH Soleil - 2 LLC

By:      /s/ KIMBERLEY ROWE
         -------------------------
Name:    KIMBERLEY ROWE
         -------------------------
Title:   Authorized Agent
         -------------------------

Galaxy CLO 1999-1, Ltd.
By:      SAI Investment Advisors, Inc.
         its Collateral Manager

By:      /s/ JOHN G. LAPHAM
         -------------------------
Name:    JOHN G. LAPHAM
         -------------------------
Title:   Authorized Agent
         -------------------------

Sun America Life Insurance Company

By:      /s/ JOHN G. LAPHAM
         -------------------------
Name:    JOHN G. LAPHAM
         -------------------------
Title:   Authorized Agent
         -------------------------