There are two main things that hurt recruiting; losing games, and coaching changes.
Michigan started off the year 5-0 and as a result they were having great success on the recruiting trail, picking up some solid talent whilst putting themselves in a position to land a top 15 class. But when the losses started to build up, the prospects turned away from Michigan. The Wolverines lost out on some big time safeties in Avery Walls and Wayne Lyons, as well as some great D-Line talent in Tim Jernigan and Anthony Zettel.
The coaching change obviously hurt this class, but considering the time Brady Hoke was given to recruit, it turned out pretty well. They were able to fill some needs at QB, DB, LB and TE, and also land a potential star in Thomas Rawls. The only bad point would be the loss of Jake Fisher to Oregon.