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Ugly Duckling Reports Third Quarter Results

October 25, 2000

Ugly Duckling Corporation, which bills itself as the largest used-car sales and financing company focused exclusively on the non-prime market, has reported third quarter and nine month 2000 financial results.

Third quarter earnings from continuing operations totaled $2.7 million, or $0.21 per diluted share, compared with earnings from continuing operations of $3.7 million, or $0.24 per share in the year-ago quarter.

Total revenues from continuing operations increased 27 percent to $158.4 million from $124.9 million in the year-ago quarter.

E-commerce provided $12.0 million in revenue and 1,417 cars sold during the third quarter of 2000 compared with $6.5 million in revenue and 763 cars sold during the second quarter of 2000.

On-balance sheet loan portfolio principal balances reached $512.8 million, representing a 9 percent sequential increase over the second quarter of 2000 and a 55 percent rise over the year-ago quarter.

New loan originations for the first quarter of 2000 reached $124,367,000, a 5 percent sequential increase from the $118,778,000 in the second quarter of 2000, and a 21 percent increase over the $102,599,000 reported in the third quarter of 1999. The company's increase over the year-ago quarter is primarily the result of an increased number of Ugly Duckling dealerships, according to Greg Sullivan, president and CEO of Ugly Duckling. According to Sullivan, the company's number of dealerships increased to 77 from 67 a year ago.

"We are very pleased with the third quarter results," Sullivan said. "We had strong sales, particularly in September. We also achieved better margins this quarter than the third quarter last year and the second quarter of this year. Overall we were very pleased with our bottom line."

New loan originations for the first nine months of 2000 reached $371,268,000, a 23 percent gain over the $304,430,000 originated in the comparable year-ago period.

Loan Servicing

At the end of the third quarter of 2000, 31+ day delinquencies rose to 8.3 percent from 7.2 percent at the end of the second quarter of 2000, but are improved from the 10.3 percent reported at the end of the third quarter of 1999.

"Although delinquencies were slightly higher than we would have liked, they are much improved from the year ago quarter," Sullivan said. "As of last week, we have complemented the roll-out of collectors to all 77 of our dealerships. We think this improves our relationships with our customers and leads to better loan performance. As an indication, our current accounts, that is accounts not one day delinquent, improved to 72.4 percent of our portfolio, almost 11 percent better than the 61.5 percent reported as of the year ago quarter."

After extensive review of delinquency trends, current and historical loan losses and projected charge offs, the company increased its provision for credit losses. Beginning in the third quarter of 2000, the additional provision is about 2 percent of loan originations, which raises the provision to 29 percent from 27 percent of the amount financed. The increase provides for an allowance of credit loss at quarter end with the targeted coverage range which is estimated to be adequate to cover net charge-offs for the next 12 to 15 months.

"Net charge-offs on our managed portfolio were $34.8 million this quarter, which is about what we expected when we announced our increase in the provision last month," Sullivan said. "Our allowance for loan losses as of the end of the quarter was over $100 million or 19.5 percent of principal balances, with which we are comfortable. We expect that the measures we have put in place on the collections front as well as enhancements we are planning in loan originations are, on a percentage basis, going to lead to lower losses over future periods."

Uglyduckling.com continues to grow

Ugly Duckling's Website, www.uglyduckling.com, is continuing to generate a growing stream of new leads and sales, according to Sullivan.

The site provides potential customers with instant credit applications as well as maps to the company's dealerships nationwide. From customers initially applying for credit through the Website, 15,841 applications were received in the third quarter of 2000, generating $12.0 million in sales with 1,417 used cars sold. In the second quarter of 2000, the company's Internet activity generated sales revenues of more than $6.5 million with 763 cars being sold.

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