They obviously knew it sucked because all of their luxury cars still have buttons. It was just a cost saving measure and they tried to spin it as “fancy” in their low to mid range cars.
That's not true though. This happened in their EVs regardless of price range. Even the Porsche Taycan which requires using a screen to adjust HVAC vents. Other than some steering wheel buttons the Taycan is all screens.
The Audi E-Tron GT (same chassis as the Taycan) oddly enough has more buttons. But that's because VAG makes sure Porsche and Audi interiors are slightly different for different market segments.
It's more about VAG thinking (like many automakers) copying the Tesla trend was what people wanted. The mistake made was not considering Tesla early adopters often being techy people who might not match broader market opinion.