Strange, it sounds like it is getting.............
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Message:
....a false fan speed input from the knob as this is what will take it out of "auto".
I have seen other reports here of the display flashing at times and the fix there was a new A/C panel which may be the case for your car. The problem the dealer has is that the panel may not be setting a fault snce it "thinks" the fan speed input is coming from the knob being turned by someone in the car, even though it actually isn't.
If they take your word for it then they may replace the panel and go from there. I'm sure they have done software changes for other reasons and this problem may still persist, right?