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What you'll need:
Assorted sandpaper
Painter's tape
IPA solution
Optimum No Rinse
Foam drill pads
Compound
Polish
Headlight sealant
Start by protecting your car's paint. Using the painter's tape, tape off the area surrounding the headlights. You can usually save time and tape by opening the hood.
Now, start by cleaning the headlight with an isopropyl alcohol solution (IPA solution). This will remove all the oils and waxes on the headlight.
Using the lowest grit sandpaper, such as 400-800, wet sand in a horizontal fashion. Following the same direction will help you see which areas you have done. You will see a milky water run down the headlights. This is all the old oxidation on your headlights.
Again, using the IPA solution, clean the headlight. Move on the next sandpaper (2000). Now move in a vertical motion. Then, clean again with an IPA solution. Now move on the last sandpaper (3000). This last grade will start to bring back clarity. If you're doing one headlight at a time, the results will be night and day. Clean again with the IPA solution.
Now, it's time to compound. This will remove the scratches left by the 3000 grit sandpaper. You can use a microfiber or a foam pad and a drill. Wipe on and then wipe off. Repeat with the polish.
Your headlights should look fantastic at this point. But we want to make sure they stay that way. Use a headlight sealant to finish it off. I like to use Meguiar's. It can be applied yearly.
Finally, it's time to clean the car. You can either wash the entire car, or use optimum no Rinse to wash only the front end.