Warning: Rant
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Dealing with mass free units is easy:
1. Grinding them into oblivion - casualty rates of 2-1 to 10-1 in Germany's favor.
2. Encircling + starving - casualty rates in excess of 10-1 in Germany's favor.
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Free units don't preclude you from winning in 1942, and you still have a chance of winning in 1943. Let's estimate some numbers ...
Let's assume the Soviets bring 300 divisions to the front each year (build+free), 1 German Division = 2 Soviet, and 1 Minor = 1 Soviet.
1941 - 160-200 German + 60-90 Minors Divisions vs. 300-350 Soviet divisions.
Axis strength advantage in 1941 -> 180*2+75-325= 110 Divisions -> easy to push.
In 1941, Soviets lose 150-200 divisions.
1942 - 180-220 German + 70-100 Minors Divisions vs. 325-175+300= 450 Soviet divisions.
Axis strength advantage in 1942 -> 200*2+85-450= 35 Divisions -> fairly easy to push.
in 1942, Soviets lose 50-100 divisions.
1943 - 200-240 German + 80-110 Minors Divisions vs. 450-75+300= 675 Soviet divisions. Soviet
Axis strength disadvantage in 1943 -> 220*2+95 - 675 = -140 -> difficult to push.
Soviet number are still realistic ~7m on the front IRL.
You only start getting screwed in 1943, and even then it's not v. clear... if in 1943 you have Stalingrad/Leningrad + Caucuses, you can cede some useless land to get Moscow, or if you need Stalingrad, to get Stalingrad, etc... So the point is, even with free units, it's not unrealistically hard.
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There are many good reasons Germany lost WWII, and virtually unlimited Soviet manpower and equipment was only one of them. At least four other reasons are only weakly implemented in DH - in particular, supply systems are not modeled well (benefiting Germany/Japan in particular), the AI UK/USA have no chance of landing in Europe vs. a human player (benefiting human Germany), partisans are a minor nuisance (esp. French ones... jeez) and occupied dissent impacts on your TC can be significantly mitigated with a few dozen extremely cheap garrison divisions. Oil is almost never an issue for a historically-balanced Germany player (i.e. don't spam ARM/MOT)- you can easily stockpile before war, and even when war starts you can get a ton from conversion, USSR (before 1941), Romania, Italy, Venezuela, Persia, etc (because hey!, Germany should be able to import Oil from Persia in 1942 (sarcasm)).
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My point is... human Germany (and AI Germany to some degree) has it too easy as-is, and the quasi-historical free units on the Eastern Front are one of the few real challenges for Germany. Just stop them in 1943 or once SOV has 600 divisions.