Haven't played in a LONG time, but this post kind of inspires me to reinstall and play again.
As I remember, the AI is kind of a one trick pony, so enjoy the armored car rush while it lasts. I wouldn't try to mod it away as its the best thing the AI has going for it. Obviously, use your own armored cars! :D Remember, these things are moving, and whoever is attacking has a tactical advantage. So try to avoid combat until you can concentrate with initiative. Create concentrated infantry units with AT ability to control chokepoints, and don't just hold one square, or try to hold a line, but deploy them along the depth of an approach route so you slow the enemy advance down. Then counterattack with your own mobile forces. Meanwhile, develop tanks/dive bombers!
Honestly, the AI just collapses after u stop the armored cars. I seem to remember them just mass producing infantry, which were obliterated by my artillery and level bombers. It was really bad at producing combined arms formations...
Let me know if you or anyone would like to play multiplayer, I really enjoyed that back in the day.
As an aside, I suggest you all try a modified game which should really become a default option (saving everyone time). The game has that annoying rule that you can take a city and gain production, which really doesn't reflect wartime reality (it takes forever to rebuild a city), and it basically makes it a race to take cities. I enjoyed it much more having all production produced in the capital, with the only advantage of capturing a city being its defensible nature.