November 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
I 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 and
the EBITDA to Interest  Expense coverage ratios contained in Section 6.18 of the
above referenced loan agreement for the quarter ended September 30, 2001 and the
quarter  ending  December 3 1, 2001. As agreed upon, in return for the waiver of
these  covenants  we will wire you  $55,000  or 25 basis  points of the  current
outstanding principal balance less funds held in the cash collateral account. We
are in compliance with all other covenants of the agreement.

As we shared  with you in the second  quarter  of this year,  the reason for the
shortfall in these covenants 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 through the implementation of credit
          scoring and increasing down payment requirements,  resulting in slower
          sales, a smaller  portfolio than  forecasted and lower interest income
          from the smaller portfolio.

     2.   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 quarter, as previously discussed.



In  addition  to the above,  we are also  making  provision  for the impact of a
recession  in the  economy.  Although  we are making  many  improvements  in our
business model arid we are confident we are underwriting better loans, we do not
have the history to accurately  assess the impact of a recession on our customer
base.  We have chosen to assume the  portfolio  in 2001 will not perform  better
than the portfolio of 2000 and adjusted the provision accordingly.

As we have discussed with you we expect to take an additional charge to earnings
in the fourth quarter of approximately $6 million pre-tax.  Based on this charge
we would  expect  the  EBITDA to  Interest  coverage  and the  Minimum  Interest
coverage to be 0.75 and 0.00  respectively in the fourth quarter and request you
waive these covenants to these levels for that period.

In light of these changes and the impact to our  profitability in the first nine
months of 2001, the "B-piece"  contracts  securing your loan continue to perform
at consistently  high levels.  Cash generated from these loans through September
2001 was $66.9 million,  which is  approximately  $12.0 million greater than the
first nine months of last year.

In addition to the  improvements  in the portfolio,  we closed our  twenty-first
receivables  securitization on October 18th with a loan principal balance $145.9
million and Class A bonds issued of $103.6 million. This securitization included
a prefunding mechanism allowing us to borrow an additional $25.9 million against
loans to be originated in the next 90 days  following the close of the deal. The
coupon on the A bonds  issued in the  securitization  was 3.44%  with an initial
funding of 2.25%, down from 6.80% and 6.00% respectively from the securitization
we completed last year at this time.

We have  also  recently  completed  a  revolving  loan with  Automotive  Finance
Corporation to provide the company with a $36 million  inventory line of credit,
which is a $10 million  larger  facility than the GE loan we are  replacing.  We
have now  completely  replaced the GE lending  relationship  and do not have any
loan facilities maturing for the remainder of 2001.

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,



Bob Fulton
Treasurer
Ugly Duckling Corporation





The undersigned hereby waive the covenants requested:

KZH Soleil - 2 LLC

By: /s/  Susan Lee
      ------------------------------------------
Name:      Susan Lee
Title:     Authorized Agent


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

By:  /s/  John Lapham
      ------------------------------------------
Name: John Lapham


Sun America Life Insurance Company

By: /s/  John Lapham
      ------------------------------------------
Name: John Lapham
Title:    Authorized Agent