What they want is a release of liability. If you are not going to persue the matter any more and are satisifed with the return of the down payment, then sign the letter in front of a notary (most banks have them). Make sure that the letter includes a paragraph where the dealership holds you without liable also and that they will not attach or report anything unfavorable to a credit reporting agency. I'd look up example of liability releases on the web and cnstruct a similar letter.
