I worked on a project (not cars, phones) where we replaced an older model that was operated through buttons and LEDs with a newer model that was just a giant multitouch screen. Surprisingly to me, it was way, way cheaper! And cheaper in multiple dimensions: the hardware buttons and LEDs weren't just more expensive, they implied a multi-step manufacturing and testing process on every unit. The touch screen was relatively standard and just came as an integrated assembly from a supplier.
We also went through a phase where we had a hybrid interface, the most common interactions done through hardware controls, everything else on the touch screen. There was always some level of regret associated with the hardware stuff, like we had some extra LED we never actually needed or just one more button would have been nice.
There's another reason why touchscreens are used. It breaks up one of the "long poles" in the project schedule.
Hardware buttons and switches have to be designed, tested, re-designed, and validated very early in the process of designing a new model so that there is time to figure out how to manufacture / source all the parts, how they integrate with the rest of the car's systems, and how they'll be wired and assembled. Just imagine what the impact would be if late in the process a new feature needs to be added! Pretty much forget about it, add it in the next major model refresh.
With a touchscreen all those dependencies go away. The hardware team just says "there's going to be an iPad sized capacitive touch screen here for climate/infotainment, and another custom sized display here for the instrument cluster". The software guys can independently do the design of the UI, changing things down to the very last moment, or even after the last moment if the car can be updated.