Personally I prefer a mixture of both. Touch screen for anything you don't need to operate while driving and physical for everything else.
Android Auto navigation, car system/audio settings, clock and system management, etc should all be a touch screen so you aren't navigating through turning knobs and pressing up and down buttons to go through various menus like your programming a microwave.
Knobs and dials and buttons for anything to do with audio volume, skip/reverse tracks, etc. and air conditioning.
Also damaging to businesses... I already knew about the butter recall and then saw this. My brain automatically filled in 'peanut butter' when reading because of the photo, and my first thought was damn, Costco fucked up again? Maybe they are going downhill in quality. Until I read the comments to realize I should reread that.