In OTL, the German Collapse was multi-layered. You had the military collapse first which was as much a consequence of the collapse of Germany's allies starting in the Balkans and ending with Austria-Hungary.
Then you had the economic collapse which was primarily the collapse of food owing to the British naval blockade exacerbated by the influenza outbreak. The population as a whole had been weakened by the war and could no longer continue at the intensity required.
That led to a social collapse and the political collapse starting with the Kiel Mutiny which in turn precipitated the collapse in Berlin and the fall of the autarchy and the coming to power of Ebert's Social Democrats.
Hindenburg and Ludendorff's realisation or recognition of military collapse was based on the failure to overcome the French and British via the Spring Offensive and the recognition that the growing American presence with its seemingly unlimited quantities of men and materiel would be able to shortly apply considerable and irresistible pressure to the weakened German defences. The events of August and September had shown the western allies, far from being on the brink of collapse and mutiny, to be able to sustain a rolling barrage of offensives along the front line to which the Germans could not respond.
With the equal recognition that the Austro-Hungarians would be equally unable to sustain a renewed Italian offensive, supported, as it was, by British and French forces and unable to help their allies, it was clear to the German Imperial High Command the war, in terms of achieving a military victory over Britain, France, Italy and the USA, was lost. The only remaining options were the fanciful use of air power or a final sortie by the HSF to try to inflict a severe enough defeat as to force the allies to terms because the land battle was over.
The only militarily sensible option was to withdraw to the 1914 borders and hope the allies would not invade. Had the German people been strong and determined to fight to save their Government, that could have worked but instead the Army was retreating back to a starving, mutinous populace who wanted no more of war.
I suspect with the coming of winter rains and snow the Entente forces would have held off an invasion of Germany until the spring of 1919 when, fully re-equipped and re-supplied and with the door to southern Germany via Austria torn open by the collapse of the Habsburgs (meaning another line for Berlin to defend), I suspect we'd have seen a broad front invasion of Germany (shades of 1944-45) with the allies using food as a weapon (the hungriest person will prepare to eat and live rather than starve and fight) and hopefully being politically adroit enough not to turn the people against them.
A 1945-style occupation and defeat of Imperial Germany has huge ramifications. I suspect the victorious allies would seek to reform German democracy as they tried in Poland, Czechoslovakia and elsewhere, In fact, German parliamentary democracy was well developed with recognisable parties of the left and right so while I would imagine the Social Democrats would be the leading political force while the centre-right would coalesce around a recognisably conservative political bloc before too long. Ebert's Government lacks the symbolic infirmity of Weimar and perhaps with League of Nations support, the new German Republic is able to maintain order but the problem of the settlement with the allies and the national humiliation such a Treaty produces would still exist.
The allies of the ATL would have to show much more political nous than in OTL and recognise the folly of a punishing Versailles-type Treaty. One thought is with longer American involvement there's less notion of isolationism in Washington.