UGLY DUCKLING CORPORATION



November 1, 2001


Curt Phillips
Chief Financial Officer
Automotive Finance Corporation
310 East 96th Street
Suite 300
Indianapolis, IN 46240

RE:  Ugly Duckling  Corporation  Master Loan and Security  Agreement dated as of
     August 24, 2001


Dear Sir:

With this letter we are  requesting a waiver of the Cashflow  Interest  Coverage
Ratio  contained  in 11.6 (c) of the above  referenced  loan  agreement  for the
quarter ended  September 30, 2001 and the quarter  ending  December 31, 2001. We
are in compliance with all other covenants of the agreement.

The reason for the current and expected  shortfall in this  covenant 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 and 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 in the quarter
and will take an additional provision in the last quarter of the year.













We would also like to request a waiver of Section  12.2 of the above  referenced
loan  agreement to repurchase  up to $10 million in our stock and/or bonds.  Our
stock is  currently  trading at less than 25% of book value and the  purchase of
our bonds would  produce a return in excess of 20% based on the last trades.  We
recently  received  approval  from our Board of Directors to complete  either of
these transactions in aggregate up to the $10 million limit.

Thank  you for  your  time  and  consideration.  I have  provided  an area on an
attached page 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










The undersigned hereby waive the covenants requested:

Automotive Finance Corporation

By:      /s/ CURTIS L. PHILLIPS
         ---------------------------------------------
Name:    Curtis L. Phillips
         --------------------------
Title:   CFO
         --------------------------