Also, I noticed that Ships do not upgrade themselves? Is this normal? Does that mean I have to scrap them each time a new model is out?
Yes! Ships are the only type of military hardware that does not up-grade. I suspect that since everything from CL on-up in size represents a single ship with an actual name, like
Bismark, Ark Royal or Lexington, there is some history for this. Also, the navies in WWII tended to use any old ship that was still floating for as long as it survived.
Remember the "Ships for Bases" deal between the USA and GB? America sent them 50 very old WWI 'four stack' destroyers in 1940 (approximately 10 DD-I counters in game terms) and the British were glad to have them!
What the game does not model are up-grades to some of the hardware attached to the ships. For example, late in the War the USA put huge amounts of AA on most of their surface ships, regardless of the age of the vessel. While this was modeled in HoI-1's extremely interesting and extraordinarily complex 'tech' tree, all this micro-managing was eliminated in HoI-2 and later versions with 'generic' models being produced for all countries. Essentially your doctrines and the modifiers are used reflect any new improvements. Check your naval doctrines on the 'tech' tree and you will note (%) percentage improvements for various classes of ships in things like "night attack", or "surface detection", etc.
And such improvements will be applied to all ships of a particular class, whether the ship is Type I antique or a nuclear powered Type VII. However the doctrine offers a percentage improvement on the
base value number, which will be unaffected. Thus a Type I DD with a low value (say: surface attack) will have a much smaller overall effect in battle than the same percentage applied to a newer ship model starting with a much higher base value in the same category.
However, nothing could change the basic ship design in terms of size, main armament, engines buried deep in the hull, amount of fuel, water, food storage and so on. So range, speed and basic abilities of the ship remain the same. You will find that if you fight a lot of surface actions, while there is some luck involved, that on average your older ships get taken out more quickly and with much more damage than the newer ships of the same class.
The usual reason for replacing your ships is to be able to 'group' ships of a similar range and speed together. It tends to work better if your Type III cruisers have Type III DD's or better Type IV DD's escorting them. Still, if you are short on 'escort' ships, a Type I DD will get you over the ratio hurdle, but the range limitation on the task force may cut a mission short, while the speed disadvantage may really hurt your fleet's 'positioning' during a battle. In a lot of ways, this reflects the actual experience of such ships in real life!
And don't forget that they are burning oil every time they put to sea! At some point they become more of a liability than an asset, although when placed in the right theater against the right opponents, you can get some use out of them well after they should, by rights, be scrapped...as happened in the War. The British used the afore mentioned American WWI DD's against U-boats out in the Atlantic away from German air cover for some years with reasonable success.
In short, in HoI you either scrap ships, or you use them until they get sunk!
Solon