A common law TM is basically a TM that's not registered, but can be recognized as being a TM should the issue come up, such as in a UDRP challenge, lawsuit, etc.
Don't be so quick to believe you can win on your own unless you have done much research on past UDRP cases; get very lucky.
Since you speak of receiving a C&D via postal mail by a legitimate law firm, that's not a good sign ... and worse you indicate that you own a domain with the word "Honda" in it which is very similar to that of the dealership.
The dealership likely has a very strong UDRP case ... they are presumably a licensed dealer of Honda and have rights to use Honda in their business name, marketing, etc.
Unless you are a Honda dealer or somehow have a bonafide business relationship with Honda that relates to your domain, you likely do best to delete (or transfer if you feel more comfortable doing that) the domain now.
TM law is very arcane and not for the faint hearted - if you are intent on challenging them, get professional assistance asap ... the dealership, if they prevail, could file suit for damages, as another poster above mentioned ... UDRP doesn't preclude separate legal action ... and that goes both ways ... that is even if you prevail in the UDRP challenge, they could still pursue the matter in court, such as claiming TM infringement ... such legal actions are often far more expensive to challenge than a UDRP ... ie. instead of $3K, you could be looking at $100K+ ... is the domain worth even spending $3K defending? ... $100K? ... ultimately that's something you'll have to decide.
Ron