This will get long, I can't help myself. Anyway, maSonn09's post got me to finally figure this out. While adding a bunch of power components to keep up will get a more competitive race, it is still a less than perfect solution. But messing with the power limiter can actually get at least close to the races I want.
My example: I'm sure I'm the only person in the world to want this(just ask PD), but I would really like to be able to race the car in my driveway(ok 1 year different) in a competitive race of my choosing. I also don't want to race a car that looks like mine but has an extra 100 horsepower, I want to race mine. I'd also like to be able to just race whatever car I want. But I can't, since PD gave us a great engine with lots of great cars and very little to do with any of them offline. They also gave us AI in A-Spec that in only a tiny few events - if any - ever drives at the best level they are capable of and that slam on the brakes constantly any time you get near them. This means racing what few events your car might fit into in A-Spec will still be largely unenjoyable.
Unfortunately if I pick my stock '97 Camaro Z28 with CS tires and go to Arcade mode on professional, the opponent list is littered with NSXs and Elises that I can't hope to keep up with even on my best track. After 30 minutes or so at the Nordschleife I'll be a couple of minutes behind even driving fairly well. If I set it to intermediate, it's the same cars but the AI drives like complete idiots and I can take the lead in 5 minutes or less driving poorly and then drag them via a rubber band for the rest of the race.
So after reading maSonn09's post I tried setting my power limiter to 75%, taking 70hp away from the car. When I started the race, I only had 1 NSX and it was a '91 which I thought was slower than the later models. I put the power back to 100% and wound up having a good fun race. There were still only a couple cars that were truly fast enough to fight for the win, but I was able to gain on the leader which is what matters. It took about a lap and a quarter of the 24 hour course to catch the NSX, then another 1 1/4 laps to get around cleanly(without slipstreaming past on the big straights). I was much faster but didn't drive my best race and raced him fair as well. I didn't want perfect I just wanted to see if it would work. The fact that I had a fun race that accidentally happened to be basically a 3-lap 24-hour race was a nice bonus.
Then I quit and reloaded at 100% limiter. The Elises and late 90s NSXs were back and in my best splits I was only able to not lose time. I lost 10-13 seconds in the remainder of the first lap after I had cleared traffic. This on a lap that was 20 seconds faster overall than the first one in the previous race.
So I reloaded at 75% again and it was the same as before, one '91 NSX that I could gain on easily.
Finding the exact right balance will of course be difficult, but this method allows you to actually use whatever car you want and get a race that is at a good level for you while the AI drives as good as it can. You also still will be stuck with a stupid field of unmatched cars with a couple of rabbits who are your only real competition. But, until PD decides to act like a professional game developer instead of a group of friends who are really good at making pretty car models and a mostly enjoyable, reasonably accurate physics engine but not the slightest clue of how to actually make a racing game, it will have to do. And it will do nicely. Now if only we could get the option to use weak slipstream and turn off AI catch-up.
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OK, rant/novel over. TL;DR: Arcade mode has a very pathetic excuse for a difficulty system and yes, that(among many other things) is entirely the fault of PD who have been doing this long enough to be expected to make a game that works properly. But if you power limit your cars before loading a race in Arcade mode and then go back to 100% once it loads you can fine-tune the cars you will be racing so that you can, in fact, configure Arcade mode to get fair races.
