You can battle it out and give yourself a lot of stress.
Sometimes it is better to take the sensible approach:-
you have had use of the car for five months or so (I assume);
You would have trouble selling it privately with the knowledge that you have, and in any case would probably get less than is being offered - private sales are usually cheaper than buying from a dealer;
You will be rid of the problem and can buy another car.
I would give serious consideration to accepting this offer just to get rid of a potential nightmare.
If you are the battling type and enjoy a challenge, however, stick to your guns - report him to trading standards, issue a summons in the Small Claims Court (after proper procedure) and see what happens.